Index Membership vs. Loss of Voting Power: The Unification of Dual-Class Shares

Forthcoming, Journal of International Financial Markets, Institutions & Money

40 Pages Posted: 16 Jan 2012 Last revised: 30 Mar 2017

See all articles by André Betzer

André Betzer

University of Wuppertal - Schumpeter School of Business and Economics

Inga van den Bongard

University of Mannheim - Finance Area

Marc Goergen

IE Business School, IE University; European Corporate Governance Institute (ECGI)

Date Written: March 1, 2017

Abstract

A change in the index selection rules of Deutsche Börse provides a unique opportunity to investigate the drivers behind the decision to abolish dual-class shares. As of June 2002, selection is based on the market capitalization of the free-float of the more liquid share class rather than the overall market capitalization. Hence, firms have had to reassess the benefits from their dual-class shares by weighing them against the cost from foregone index weight associated with having two share classes. Our findings suggest that index membership significantly affects the controlling shareholder’s motivation to unify preferred and common stock.

Keywords: private benefits of control, dual-class stock, ownership structure, corporate governance

JEL Classification: G30, G32

Suggested Citation

Betzer, André and van den Bongard, Inga and Goergen, Marc, Index Membership vs. Loss of Voting Power: The Unification of Dual-Class Shares (March 1, 2017). Forthcoming, Journal of International Financial Markets, Institutions & Money , Available at SSRN: https://ssrn.com/abstract=1986224 or http://dx.doi.org/10.2139/ssrn.1986224

André Betzer

University of Wuppertal - Schumpeter School of Business and Economics ( email )

Gaußstraße 20
Wuppertal
Germany

HOME PAGE: http://finance.uni-wuppertal.de/index.php?id=1153

Inga Van den Bongard

University of Mannheim - Finance Area ( email )

Mannheim, 68131
Germany

Marc Goergen (Contact Author)

IE Business School, IE University ( email )

Finance Department
Maria de Molina, 12
Madrid, 28006
Spain

HOME PAGE: http://www.ie.edu/business-school/faculty-and-research/faculty/marc-goergen/

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

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