Excess Control Rights and Corporate Acquisitions
43 Pages Posted: 15 Mar 2012 Last revised: 2 Oct 2014
Date Written: September 25, 2014
French-listed companies exhibit a concentrated ownership structure, with the largest shareholder holding more voting rights than cash flow rights. This wedge predominantly stems from a typical system of double voting shares. This paper studies the acquisitions made by French-listed firms over the 2000-2009 period and investigates how these ownership characteristics affect acquisition likelihood and acquirer abnormal returns around announcements. Firms whose largest shareholder holds significant excess control rights are less likely to engage in mergers and acquisitions (M&A) activity. The separation of ownership from control is negatively correlated with acquisition quality; this is especially the case for firms that authorize double voting rights. This result suggests that controlling shareholders use corporate acquisitions as a means of extracting private benefits at the expense of minority shareholders. Moreover, it casts doubt on the effectiveness of a new regulation (February 2014) that generalizes double voting rights.
Keywords: Ownership, excess control rights, double voting rights, corporate acquisitions, acquirer return, bidding likelihood.
JEL Classification: G32, G34
Suggested Citation: Suggested Citation