Loyalty Shares with Tenure Voting - Does the Default Rule Matter? Evidence from the Loi Florange Experiment

45 Pages Posted: 2 May 2018 Last revised: 2 Feb 2020

See all articles by Marco Becht

Marco Becht

Solvay Brussels School of Economics and Management (ULB); European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Yuliya Kamisarenka

Independent

Anete Pajuste

Stockholm School of Economics, Riga; European Gorporate Governance Institute (ECGI)

Date Written: April 1, 2018

Abstract

The contractual theory of the firm predicts that companies adopt charters that maximise firm value, regardless of the default rule. We test this proposition around an exogenous switch of the default from one share-one vote to tenure voting following a law reform in France. In initial public offerings (IPOs) tenure voting is primarily adopted by families and after the reform its use increases slightly but not significantly. The change in default rule has no significant impact on company characteristics or valuations. For companies that were already listed with one share-one vote and would have been forced to switch to tenure voting by default we observe a revealed preference for the choice they had made at the IPO; one share-one vote companies preserve their pre-reform status, unless the French state has a blocking minority. Overall, the results suggest that once firms have optimized, changing the default rule imposes transaction costs without changing outcomes.

Keywords: Default rules, contractarian theory, loyalty shares, tenure voting, time-phased voting, dual-class shares, one-share-one-vote

JEL Classification: D23, K22, G32, G34

Suggested Citation

Becht, Marco and Kamisarenka, Yuliya and Pajuste, Anete, Loyalty Shares with Tenure Voting - Does the Default Rule Matter? Evidence from the Loi Florange Experiment (April 1, 2018). European Corporate Governance Institute (ECGI) - Law Working Paper No. 398/2018, Available at SSRN: https://ssrn.com/abstract=3166494 or http://dx.doi.org/10.2139/ssrn.3166494

Marco Becht (Contact Author)

Solvay Brussels School of Economics and Management (ULB) ( email )

42 Avenue F. D. Roosevelt
1050
Brussels, 1050
Belgium
+32 2 6504466 (Phone)

HOME PAGE: http://www.solvay.edu/profile/marcobecht

European Corporate Governance Institute (ECGI) ( email )

Palace of the Academies
Rue Ducale 1 Hertogstraat
Brussels, 1000
Belgium

HOME PAGE: http://www.ecgi.global/users/marco-becht

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Yuliya Kamisarenka

Independent ( email )

Anete Pajuste

Stockholm School of Economics, Riga ( email )

Strelnieku iela 4a
Riga, LV 1010
Latvia

European Gorporate Governance Institute (ECGI) ( email )

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

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
355
Abstract Views
1,363
rank
93,484
PlumX Metrics