The Effect of Tenure-Based Voting Rights on Stock Market Attractiveness: Evidence From the Florange Act

34 Pages Posted: 8 Feb 2019 Last revised: 5 Nov 2019

See all articles by Thomas Bourveau

Thomas Bourveau

Columbia Business School - Accounting, Business Law & Taxation

Francois Brochet

Boston University - Department of Accounting

Alexandre Garel

Audencia Business School

Date Written: November 3, 2019

Abstract

We examine the capital market consequences of a regulatory intervention aimed at generalizing tenure voting in French public companies. The 2014 Florange Act departs from the ‘one share one vote’ principle by automatically granting double voting rights (DVR) to shares held for at least two years. However, firms can opt out through an annual meeting vote. We find that firms that adopt DVR by default—especially those with a large blockholder—experience a decrease in foreign institutional ownership and an increase in cost of capital relative to other firms. Furthermore, the market reacts positively to successful opt-out votes. Collectively, our evidence casts doubt on the merit of regulation-induced tenure voting as a desirable corporate governance mechanism. Instead, the results echo concerns that mandating double voting rights reinforces insiders’ entrenchment.

Keywords: Shareholder Voting, Institutional Ownership, Corporate Governance Regulation

JEL Classification: G32, G34, G38, K22

Suggested Citation

Bourveau, Thomas and Brochet, Francois and Garel, Alexandre, The Effect of Tenure-Based Voting Rights on Stock Market Attractiveness: Evidence From the Florange Act (November 3, 2019). Available at SSRN: https://ssrn.com/abstract=3324237 or http://dx.doi.org/10.2139/ssrn.3324237

Thomas Bourveau

Columbia Business School - Accounting, Business Law & Taxation ( email )

3022 Broadway
New York, NY 10027
United States

Francois Brochet (Contact Author)

Boston University - Department of Accounting ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

Alexandre Garel

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312
France

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