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

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  • Kai Li
  • Hernán Ortiz‐Molina
  • Xinlei Zhao

Abstract

We examine whether, and to what extent, shareholder voting rights affect institutional investment decisions. 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 fewer 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.

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  • Kai Li & Hernán Ortiz‐Molina & Xinlei Zhao, 2008. "Do Voting Rights Affect Institutional Investment Decisions? Evidence from Dual‐Class Firms," Financial Management, Financial Management Association International, vol. 37(4), pages 713-745, December.
    • Handle: RePEc:bla:finmgt:v:37:y:2008:i:4:p:713-745
    DOI: 10.1111/j.1755-053X.2008.00032.x
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    7. Abdullah & Jia’nan Zhou & Muhammad Hashim Shah, 2017. "Effect of Disproportional Voting Rights on Firm’s Market Performance: Evidence from Chinese Firms Cross-Listed on U.S. Exchanges," IJFS, MDPI, vol. 5(3), pages 1-11, September.
    8. Jordan, Bradford D. & Li, Ang & Liu, Mark H., 2022. "Mutual fund preference for pure-play firms," Journal of Financial Markets, Elsevier, vol. 61(C).
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    13. Amoako-Adu, Ben & Baulkaran, Vishaal & Smith, Brian F., 2011. "Executive compensation in firms with concentrated control: The impact of dual class structure and family management," Journal of Corporate Finance, Elsevier, vol. 17(5), pages 1580-1594.
    14. Chung, Kee H. & Lee, Choonsik, 2020. "Voting methods for director election, monitoring costs, and institutional ownership," Journal of Banking & Finance, Elsevier, vol. 113(C).
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    20. Giannetti, Mariassunta & Braggion, Fabio, 2013. "Public Debate and Stock Prices: Evidence from the Voting Premium," CEPR Discussion Papers 9619, C.E.P.R. Discussion Papers.
    21. Jan C. van Ours, 2022. "How Retirement Affects Mental Health, Cognitive Skills and Mortality; an Overview of Recent Empirical Evidence," Tinbergen Institute Discussion Papers 22-050/V, Tinbergen Institute.
    22. André Schmidt, 2017. "Determinants of Corporate Voting – Evidence from a Large Survey of German Retail Investors," Schmalenbach Business Review, Springer;Schmalenbach-Gesellschaft, vol. 18(1), pages 71-103, February.
    23. Zheng, Suyan, 2017. "Can corporate diversification induce more tax avoidance?," Journal of Multinational Financial Management, Elsevier, vol. 41(C), pages 47-60.
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    25. Kałdoński, Michał & Jewartowski, Tomasz & Mizerka, Jacek, 2020. "Capital market pressure, real earnings management, and institutional ownership stability - Evidence from Poland," International Review of Financial Analysis, Elsevier, vol. 71(C).

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