Timing and Wealth Effects of German Dual Class Stock Unifications

46 Pages Posted: 17 Jul 2006

See all articles by Ingolf Dittmann

Ingolf Dittmann

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

Niels Ulbricht

University of Mannheim - Department of Business Administration and Finance

Multiple version iconThere are 2 versions of this paper

Abstract

This paper studies the reasons and the costs of separating ownership from control by analyzing the decision of German dual class firms to consolidate their share structure from dual to single class equity between 1990 and 2001. We find that the firm value increases significantly by an average 4% on the announcement day. A significant part of the variation in abnormal returns can be explained by the ownership structure and by changes in liquidity. A logit analysis of the unification decision yields that firms are more likely to unify if their controlling shareholder loses only little voting power in a stock unification. Also, firms that are financially constrained are more likely to abolish dual class shares; these firms often issue additional shares after the stock unification.

A previous version of this paper was circulated via SSRN under the title When do Firms Abolish Dual-Class Stocks?

Keywords: capital structure, entrenchment, financial constraints, liquidity, ownership structure

JEL Classification: G32, G34

Suggested Citation

Dittmann, Ingolf and Ulbricht, Niels, Timing and Wealth Effects of German Dual Class Stock Unifications. European Financial Management, Forthcoming, EFMA 2004 Basel Meetings, Available at SSRN: https://ssrn.com/abstract=556145 or http://dx.doi.org/10.2139/ssrn.556145

Ingolf Dittmann (Contact Author)

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

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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 the Royal Academies of Belgium
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1000 Brussels
Belgium

Niels Ulbricht

University of Mannheim - Department of Business Administration and Finance ( email )

D-68131 Mannheim
Germany

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