The Capital Market Consequences of Tenure-Based Voting Rights: Evidence from the Florange Act

Abstract

We examine the 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 document three main findings. First, firms that adopt DVR by
default experience a decrease in long-term foreign institutional ownership offset by an
increase in insider/family ownership. Second, those firms significantly underperform
in terms of stock returns after Florange relative to those that reject DVR. Third,
their environmental and social performance deteriorates. 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 can reinforce insider and blockholder entrenchment.

Keywords: Shareholder Voting, Institutional Ownership, Corporate Governance Regulation

JEL Classification: G32, G34, G38, K22