Ownership Structure and the Separation of Voting and Cash Flow Rights - Evidence from Switzerland

52 Pages Posted: 3 May 2005 Last revised: 15 Jun 2013

See all articles by Markus Schmid

Markus Schmid

University of St. Gallen - Swiss Institute of Banking and Finance; University of St. Gallen - School of Finance

Date Written: April 16, 2009

Abstract

This paper analyzes the relation between a firm’s equity capital structure, managerial and outside block ownership, and firm value based on a unique and hand-collected sample of 545 observations on 174 Swiss firms over the period from 2002 to 2005. While previous papers concentrate either on managerial ownership or on blockholdings, which can but need not be managerial, this paper distinguishes between the two and investigates the relative importance of them. This distinction turns out to be important. I find the probability that a firm has a dual-class structure to be positively related to managerial ownership, the ownership of the single largest shareholder, and inside blockholders more generally while negatively related to the ownership of “true” outside blockholders such as listed companies, mutual and pension funds. Moreover, I present strong evidence that the aim of the dual-class structure is to secure the largest shareholder’s and, more specifically, inside blockholders’ control over the firm. Most importantly, I find evidence that these inside controlling shareholders take advantage of the dual-class structure by extracting private benefits of control.

Keywords: Dual-class shares, voting rights restrictions, cash flow rights and voting rights, managerial ownership, block ownership

JEL Classification: G32, G34

Suggested Citation

Schmid, Markus, Ownership Structure and the Separation of Voting and Cash Flow Rights - Evidence from Switzerland (April 16, 2009). Available at SSRN: https://ssrn.com/abstract=714781 or http://dx.doi.org/10.2139/ssrn.714781

Markus Schmid (Contact Author)

University of St. Gallen - Swiss Institute of Banking and Finance ( email )

Rosenbergstrasse 52
St. Gallen, 9000
Switzerland

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

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