34 Pages Posted: 19 Nov 2011
Date Written: October 12, 2011
We show how the change to differential voting rights allows dominant shareholders to retain control even after selling substantial economic ownership in the firm and diversifying their wealth. This unbundling of cash flow and control rights leads to more dispersed economic ownership and a closer alignment of dominant and dispersed shareholder interests. When insiders sell sizable amounts of their economic interests, firms increase capital expenditures, strengthen corporate focus, divest non-core operations, and generate superior industry-adjusted performance. The change to differential voting rights both fosters corporate control activity and creates higher takeover premiums that are paid equally to all shareholders.
Keywords: Differential voting rights, one-share-one-vote, tag-along rights
JEL Classification: G34
Suggested Citation: Suggested Citation
Bauguess, Scott W. and Slovin, Myron B. and Sushka, Marie E., Large Shareholder Diversification, Corporate Risk Taking, and the Benefits of Changing to Differential Voting Rights (October 12, 2011). Journal of Banking and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1961347 or http://dx.doi.org/10.2139/ssrn.1961347
By Konrad Raff