45 Pages Posted: 3 Sep 2011 Last revised: 15 Jun 2016
Date Written: August 31, 2011
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: 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