Posted: 20 Feb 2007 Last revised: 13 Oct 2010
Date Written: December 10, 2009
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: 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