Bolstering Family Control: Evidence from Loyalty Shares

51 Pages Posted: 1 Aug 2019 Last revised: 1 May 2020

See all articles by Emanuele Bajo

Emanuele Bajo

University of Bologna - Department of Economics

Massimiliano Barbi

University of Bologna - Department of Management

Marco Bigelli

University of Bologna - Department of Management

Ettore Croci

Catholic University of the Sacred Heart of Milan

Date Written: July 1, 2019

Abstract

We study the introduction of a new control-enhancing mechanism in Italy, a country characterized
by family-controlled firms and growing shareholders’ protection by institutional
investors. Since 2014, Italian firms have been able to adopt loyalty shares, which allow
a double voting right if shares are continuously held for at least two years. We find that
about 20 percent of listed firms have introduced loyalty shares, and family-controlled firms
are the most likely adopters. Loyalty shares neither anticipate acquisitions, nor equity
issues by the adopting firm. Instead, they allow controlling shareholders to reduce their
equity stake without losing control. We report no evidence of an adverse wealth effect
both at the adoption and in the years following it. Institutional investors oppose the introduction
of loyalty shares, yet they do not reduce their holdings in adopting firms. Overall,
our evidence suggests that bolstering family control is the main effect of the introduction
of loyalty shares.

Keywords: Loyalty shares, Family firms, Long-term shareholders; Control-enhancing mechanisms

JEL Classification: G32, G34

Suggested Citation

Bajo, Emanuele and Barbi, Massimiliano and Bigelli, Marco and Croci, Ettore, Bolstering Family Control: Evidence from Loyalty Shares (July 1, 2019). European Corporate Governance Institute - Finance Working Paper No. 619/2019, Available at SSRN: https://ssrn.com/abstract=3428887 or http://dx.doi.org/10.2139/ssrn.3428887

Emanuele Bajo

University of Bologna - Department of Economics ( email )

Bologna
Italy

Massimiliano Barbi (Contact Author)

University of Bologna - Department of Management ( email )

via Capo di Lucca 34
Bologna, 40126
Italy
+39 051 2098404 (Phone)
+39 051 246411 (Fax)

HOME PAGE: http://www.sites.google.com/site/massimilianobarbifinance/

Marco Bigelli

University of Bologna - Department of Management ( email )

Via Capo di Lucca 34
Bologna, 40126
Italy
+39 051 2098060 (Phone)
+39 051 6390612 (Fax)

Ettore Croci

Catholic University of the Sacred Heart of Milan ( email )

Largo Gemelli, 1
Via Necchi 9
Milan, MI 20123
Italy

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