Download this Paper Open PDF in Browser

Why are Shareholders Not Paid to Give Up Their Voting Privileges? Unique Evidence from Italy

45 Pages Posted: 3 Sep 2011 Last revised: 15 Jun 2016

Marco Bigelli

University of Bologna - Department of Management

Vikas Mehrotra

University of Alberta - Department of Finance and Statistical Analysis

P. Raghavendra Rau

University of Cambridge

Date Written: August 31, 2011

Abstract

Dual-class share unifications have typically been argued to be beneficial for voting shareholders. In the unification, voting shareholders are usually compensated for the loss of their superior voting privilege. However, no covenants exist that make this compensation mandatory for voting shareholders. In this paper, we examine a subset of dual class share unifications from Italy where, in the main, voting shareholders are not offered any compensation for the loss of their superior voting rights. We present a simple model describing the conditions under which the controlling voting shareholder will choose not to offer compensation to minority voting shareholders as part of a share unification. Our empirical results support the model predictions.

Keywords: dual class shares, unification, corporate governance, expropriation, insider trading, equity structure

JEL Classification: G32, G34

Suggested Citation

Bigelli, Marco and Mehrotra, Vikas and Rau, P. Raghavendra, Why are Shareholders Not Paid to Give Up Their Voting Privileges? Unique Evidence from Italy (August 31, 2011). Journal of Corporate Finance, 17(5), 1619-1635, 2011; ECGI - Finance Working Paper No. 180/2007. Available at SSRN: https://ssrn.com/abstract=1921222

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)

Vikas Mehrotra

University of Alberta - Department of Finance and Statistical Analysis ( email )

School of Business
University of Alberta
Edmonton, Alberta T6G 2R6
Canada
780-492-2976 (Phone)
780-492-3325 (Fax)

P. Raghavendra Rau (Contact Author)

University of Cambridge ( email )

Cambridge Judge Business School
Trumpington Street
Cambridge, Cambridgeshire CB21AG
United Kingdom
3103626793 (Phone)

HOME PAGE: http://www.raghurau.com/

Paper statistics

Downloads
790
Rank
24,915
Abstract Views
2,419