Block Trading, Ownership Structure, and the Value of Corporate Votes

37 Pages Posted: 25 Jul 2004  

Ingolf Dittmann

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Tinbergen Institute; Erasmus Research Institute of Management (ERIM); European Corporate Governance Institute (ECGI)

Date Written: September 9, 2004

Abstract

This paper shows that open market block trading can explain how private benefits of control enjoyed by large shareholders are reflected in the "voting premium", i.e. the price difference between voting and non-voting shares. I first demonstrate in a microstructure model with informed traders and short-selling constraint that the trading activity of blockholders translates into a spread between the prices of voting and non-voting shares. In contrast to the extant theory, this model can explain the voting premium in the absence of corporate takeovers. In the empirical part of the paper, I show for a comprehensive sample of German dual class companies that large trades occur more often in voting shares than in non-voting shares, and that the block trading activity in voting shares is strongly correlated with the voting premium. Moreover, the effect of the ownership structure on the voting premium becomes insignificant once I control for the block trading activity in voting shares.

JEL Classification: G30, G34

Suggested Citation

Dittmann, Ingolf, Block Trading, Ownership Structure, and the Value of Corporate Votes (September 9, 2004). EFA 2004 Maastricht Meetings Paper No. 4338. Available at SSRN: https://ssrn.com/abstract=521482 or http://dx.doi.org/10.2139/ssrn.521482

Ingolf Dittmann (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands
+31 10 4081283 (Phone)
+31 10 4089165 (Fax)

HOME PAGE: http://people.few.eur.nl/dittmann/

Tinbergen Institute

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Paper statistics

Downloads
470
Rank
48,463
Abstract Views
2,349