Am I Right or Am I Right? Dividend Privileges and the Value of Voting Rights

Abstract

The value of a right should not be lower than zero. The present paper overcomes some possible measurement errors and proposes a new measure of the voting right, the Relative Vote Segment, which incorporates dividend privileges into the inferior class of shares, when granted. Results from Italian non-voting shares listed in the 1999-2008 period show that our more accurate measure reports an average voting right equal to 45.58%, while the standard relative price difference and the Nenova (2003) measure greatly underestimate its value and report average values equal to 20.35% and 1.30%, respectively. Our methodology reports almost no negative values, while traditional measures report almost 25% of negative values. Though a more correct measure of the voting right is essential to estimate its average value and make unbiased cross-country comparisons, the determinants of the voting rights are also well captured by the relative price difference, once the dividend yield differences are controlled for.

Keywords: non-voting shares, voting premium, dual-class share firms, Italy

JEL Classification: G34