Self-Expropriation Versus Self-Interest in Dual-Class Voting: The Pirelli Case Study

ECGI Finance Working Paper No. 294/2010

Financial Management, Fall 2011

46 Pages Posted: 15 Jan 2009 Last revised: 15 Nov 2011

Marco Bigelli

University of Bologna - Department of Management

Stefano Mengoli

University of Bologna - Department of Management

Date Written: September 14, 2009

Abstract

Called to vote for a reduction in their dividend privileges, the non-voting shareholders of one of the largest Italian firms appeared to expropriate themselves and favor the voting class of shares. However, what at first seemed to be self-expropriation turned out to be self-interest, as soon as the media coverage, the voting decision, and the dual-class ownership of 36,361 shareholders were investigated. Firstly, our new anecdotal evidence shows that the media can mislead investors and help the approval of harmful proposals when they are not independent of the companies they report on. Secondly, most of institutional investors who cast the “for” vote were in conflict of interest either because of ownership ties with the controlling shareholders or because they held both classes of shares. Finally, we find that both retail and institutional dual-class shareholders are more likely to vote for self-expropriating one class of shares if they benefit from the other class in their portfolios. When conflict of interest in dual-class voting is not regulated, dual-class ownership protects from dual-class wealth transfers but favors the approval of the operations it is meant to hedge from.

Keywords: Shareholders expropriation, Shareholders voting, Dual-class shares, Conflict of interest; Media independence

JEL Classification: G32, G34

Suggested Citation

Bigelli, Marco and Mengoli, Stefano, Self-Expropriation Versus Self-Interest in Dual-Class Voting: The Pirelli Case Study (September 14, 2009). ECGI Finance Working Paper No. 294/2010. Available at SSRN: https://ssrn.com/abstract=1328303

Marco Bigelli

University of Bologna - Department of Management ( email )

Via Capo di Lucca 34
Bologna, 40126
Italy
+39 051 2098060 (Phone)
+39 051 6390612 (Fax)

Stefano Mengoli (Contact Author)

University of Bologna - Department of Management ( email )

Via Capo di Lucca, 24
http://stefanomengoli.weebly.com/
Bologna, Bologna 40132
Italy

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