Security-Voting Structure and Bidder Screening
Université de Franche-Comté - CRESE
Swedish House of Finance; Stockholm School of Economics - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); London School of Economics - Financial Markets (FMG) Group
New York University (NYU) - Leonard N. Stern School of Business; European Corporate Governance Institute (ECGI)
December 10, 2009
Journal of Financial Intermediation, Forthcoming
This paper demonstrates that non-voting shares can promote takeovers. When the bidder has private information, shareholders may refuse to tender because they suspect to sell at an ex post unfavourable price. The ensuing friction in the sale of cash flow rights can prevent an efficient change of control. Separating cash flow and voting rights alters the degree of cross-subsidization among bidder types. It can therefore be used as an instrument to promote takeover activity and to discriminate between efficient and inefficient bidders. The optimal fraction of non-voting shares decreases with managerial ability, implying an inverse relationship between firm value and non-voting shares.
Keywords: Tender offers, free-rider problem, one share - one vote
JEL Classification: G32, G34
Date posted: February 20, 2007 ; Last revised: October 13, 2010
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