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

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