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Voting Rights and Market Reaction to Dual Class Common Stock Issues

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  • Shum, Connie M
  • Davidson, Wallace N, III
  • Glascock, John L

Abstract

This paper examines the return of the original class of common stock around the announcement of the creation of second class of stock. As in previous studies, this one finds a generally ambiguous market reaction on the first public announcement. However, this paper offers new evidence that both the voting rights and the compensation for loss of voting rights are important determinants of the market's reaction. Specifically, it demonstrates that a second class stock issue that contains no compensation for the lost voting rights results in negative returns. When the original stockholders are compensated for lost voting rights, they experience positive abnormal returns. Copyright 1995 by MIT Press.

Suggested Citation

  • Shum, Connie M & Davidson, Wallace N, III & Glascock, John L, 1995. "Voting Rights and Market Reaction to Dual Class Common Stock Issues," The Financial Review, Eastern Finance Association, vol. 30(2), pages 275-287, May.
    • Handle: RePEc:bla:finrev:v:30:y:1995:i:2:p:275-87
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    Cited by:

    1. Smart, Scott B. & Zutter, Chad J., 2003. "Control as a motivation for underpricing: a comparison of dual and single-class IPOs," Journal of Financial Economics, Elsevier, vol. 69(1), pages 85-110, July.
    2. Pornsit Jiraporn, 2005. "An empirical analysis of corporate takeover defences and earnings management: evidence from the US," Applied Financial Economics, Taylor & Francis Journals, vol. 15(5), pages 293-303.

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