Do Voting Rights Affect Institutional Investment Decisions? Evidence from Dual-Class Firms

58 Pages Posted: 8 Dec 2006 Last revised: 8 Sep 2009

See all articles by Kai Li

Kai Li

University of British Columbia (UBC) - Sauder School of Business; China Academy of Financial Research (CAFR)

Hernan Ortiz-Molina

University of British Columbia (UBC) - Sauder School of Business

Xinlei Shelly Zhao

Government of the United States of America - Office of the Currency Comptroller - Risk Analysis Division

Date Written: November 2007

Abstract

We examine whether, and to what extent, shareholder voting rights affect institutional investment decisions. Our analysis compares institutional investment in dual-class firms, where multiple share classes carrying differential voting rights allow insiders to control the firm and leave outside investors with little or no control rights, to that in single-class firms, where each share carries one vote. We find that institutional ownership in dual-class firms is significantly lower than it is in single-class firms after controlling for other determinants of institutional investment. Although institutions of all types hold less of the shares of dual-class firms, this avoidance is more pronounced for long-term investors with strong fiduciary responsibilities than for short-term investors with weak fiduciary duties. Following the unification of dual-class shares into a single-class, institutional investors increase their shareholdings in the unifying firm. Overall, our results suggest that voting rights are an important determinant of institutional investment decisions.

Keywords: corporate governance, dual-class firms, institutional investors, ownership structure, unification, voting rights

JEL Classification: G11, G32

Suggested Citation

Li, Kai and Ortiz-Molina, Hernan and Zhao, Xinlei, Do Voting Rights Affect Institutional Investment Decisions? Evidence from Dual-Class Firms (November 2007). Available at SSRN: https://ssrn.com/abstract=950295 or http://dx.doi.org/10.2139/ssrn.950295

Kai Li (Contact Author)

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
604-822-8353 (Phone)
604-822-4695 (Fax)

HOME PAGE: http://finance.sauder.ubc.ca/~kaili

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

Hernan Ortiz-Molina

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
604-822-6095 (Phone)
604-822-4695 (Fax)

Xinlei Zhao

Government of the United States of America - Office of the Currency Comptroller - Risk Analysis Division ( email )

250 E Street, SW
Washington, DC 20219
United States

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