Loyalty Shares with Tenure Voting - Does the Default Rule Matter? Evidence from the Loi Florange Experiment
41 Pages Posted: 2 May 2018 Last revised: 14 Sep 2019
Date Written: April 1, 2018
The contractual theory of the firm predicts that companies adopt charters that maximise firm value, regardless of the default rule. We test this proposition empirically around a major legal reform. French companies going public used to give shareholders one vote per share by default. The contracting parties could opt-out via a charter amendment granting double voting rights to shareholders holding the title for at least two years (tenure voting). In 2014 the rule was reversed and tenure voting became the default. Companies wishing to go public with one share – one vote needed to introduce a charter amendment. The new rule also applied to the stock of listed companies; without a charter amendment one share – one companies were switched to tenure voting. The empirical evidence is largely consistent with the predictions of contractarian theory. French IPO companies make flexible use of tenure voting and the change in default rule had no significant impact on the IPO flow or valuations. Companies that had listed already without tenure voting reverted to one share - one vote, unless the French state was the major shareholder.
Keywords: Loyalty shares, tenure voting, time-phased voting, dual-class shares, one-shareone-vote, Coase theorem
JEL Classification: D23, K22, G32, G34
Suggested Citation: Suggested Citation