Timing and Wealth Effects of German Dual Class Stock Unifications

34 Pages Posted: 29 Dec 2007

See all articles by Ingolf Dittmann

Ingolf Dittmann

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Tinbergen Institute; Erasmus Research Institute of Management (ERIM); European Corporate Governance Institute (ECGI)

Niels Ulbricht

University of Mannheim - Department of Business Administration and Finance

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Abstract

This paper studies the reasons and the costs of separating ownership from control by analyzing the decision of German dual class firms to consolidate their share structure from dual to single class equity between 1990 and 2001. We find that the firm value increases significantly by an average 4% on the announcement day. A significant part of the variation in abnormal returns can be explained by the ownership structure and by changes in liquidity. A logit analysis of the unification decision yields that firms are more likely to unify if their controlling shareholder loses only little voting power in a stock unification. Also, firms that are financially constrained are more likely to abolish dual class shares' these firms often issue additional shares after the stock unification.

Suggested Citation

Dittmann, Ingolf and Ulbricht, Niels, Timing and Wealth Effects of German Dual Class Stock Unifications. European Financial Management, Vol. 14, Issue 1, pp. 163-196, January 2008, Available at SSRN: https://ssrn.com/abstract=1079197 or http://dx.doi.org/10.1111/j.1468-036X.2007.00388.x

Ingolf Dittmann (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

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Tinbergen Institute

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Erasmus Research Institute of Management (ERIM)

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3000 DR Rotterdam
Netherlands

European Corporate Governance Institute (ECGI) ( email )

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Belgium

Niels Ulbricht

University of Mannheim - Department of Business Administration and Finance ( email )

D-68131 Mannheim
Germany

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