Loyalty Shares with Tenure Voting - A Coasian Bargain? Evidence from the Loi Florange Experiment
58 Pages Posted: 2 May 2018
Date Written: April 2018
French listed companies can issue shares that confer two votes per share after a holding period of at least two years (loyalty shares with tenure voting rights). In 2014 the default rule changed from one-share-one-vote to loyalty shares. The Coase theorem predicts that ceteris paribus shareholders rewrite the corporate charter to preserve the pre-reform structure. The theorem also predicts that the proportion of loyalty shares in initial public offerings is unchanged. The paper shows that most one-share-one-vote companies reverted to the prereform contract. The exception were firms with a stake held by the French state. In initial public offerings, the new default rule had an impact; the proportion of loyalty share statutes increased from about forty to fifty percent after the passage of the law. Companies that kept the same statutes have a significantly higher market to book ratio than companies forced into a different regime. The evidence is broadly consistent with the predictions of the Coase theorem, but only in the absence of conflicted parties with veto power.
Keywords: Loyalty shares, tenure voting, time-phased voting, dual-class shares, one-shareone-vote, Coase theorem
JEL Classification: D23, K22, G32, G34
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