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Security-Voting Structure and Bidder Screening

Posted: 20 Feb 2007 Last revised: 13 Oct 2010

Christian At

Université de Franche-Comté - CRESE

Mike Burkart

Swedish House of Finance; London School of Economics and Political Science, Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Samuel Lee

Santa Clara University - Leavey School of Business; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: December 10, 2009

Abstract

This paper demonstrates that non-voting shares can promote takeovers. When the bidder has private information, shareholders may refuse to tender because they suspect to sell at an ex post unfavourable price. The ensuing friction in the sale of cash flow rights can prevent an efficient change of control. Separating cash flow and voting rights alters the degree of cross-subsidization among bidder types. It can therefore be used as an instrument to promote takeover activity and to discriminate between efficient and inefficient bidders. The optimal fraction of non-voting shares decreases with managerial ability, implying an inverse relationship between firm value and non-voting shares.

Keywords: Tender offers, free-rider problem, one share - one vote

JEL Classification: G32, G34

Suggested Citation

At, Christian and Burkart, Mike and Lee, Samuel, Security-Voting Structure and Bidder Screening (December 10, 2009). Journal of Financial Intermediation, Forthcoming. Available at SSRN: https://ssrn.com/abstract=962137

Christian At

Université de Franche-Comté - CRESE ( email )

1 rue Claude Goudimel
25030 Besancon cedex, DOUBS 25000
France

Mike C. Burkart (Contact Author)

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

HOME PAGE: http://www.cepr.org/default_static.htm

European Corporate Governance Institute (ECGI)

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

HOME PAGE: http://www.ecgi.org

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

London School of Economics and Political Science, Department of Finance ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Samuel Lee

Santa Clara University - Leavey School of Business

500 El Camino Real
Santa Clara, CA California 95053
United States

European Corporate Governance Institute (ECGI) ( email )

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

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