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Why are shareholders not paid to give up their voting privileges? Unique evidence from Italy

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  • Bigelli, Marco
  • Mehrotra, Vikas
  • Rau, P. Raghavendra

Abstract

Dual-class share unifications have typically been argued to be beneficial for voting shareholders, who are usually compensated for the loss of their superior voting privileges. However, no covenants exist that make this compensation mandatory for voting shareholders. In this paper, we examine a subset of dual class share unifications from Italy where, in the main, voting shareholders are not offered any compensation in lieu of the loss of their superior voting rights. We present a simple model describing the conditions under which the controlling voting shareholder will choose not to offer compensation to minority voting shareholders as part of a share unification. Our empirical results support the model predictions.

Suggested Citation

  • Bigelli, Marco & Mehrotra, Vikas & Rau, P. Raghavendra, 2011. "Why are shareholders not paid to give up their voting privileges? Unique evidence from Italy," Journal of Corporate Finance, Elsevier, vol. 17(5), pages 1619-1635.
    • Handle: RePEc:eee:corfin:v:17:y:2011:i:5:p:1619-1635
    DOI: 10.1016/j.jcorpfin.2011.09.005
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    Cited by:

    1. Ghosh, Chinmoy & Hilliard, James & Petrova, Milena & Phani, B.V., 2016. "Economic consequences of deregulation: Evidence from the removal of voting cap in Indian banks," Journal of Banking & Finance, Elsevier, vol. 72(S), pages 19-38.
    2. Bortolon, Patrícia M. & Câmara Leal, Ricardo P., 2014. "Dual-class unifications and corporate governance in Brazil," Emerging Markets Review, Elsevier, vol. 20(C), pages 89-108.
    3. Betzer, André & van den Bongard, Inga & Goergen, Marc, 2017. "Index membership vs. loss of voting power: The unification of dual-class shares," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 49(C), pages 140-153.
    4. Lauterbach, Beni & Pajuste, Anete, 2015. "The long-term valuation effects of voluntary dual class share unifications," Journal of Corporate Finance, Elsevier, vol. 31(C), pages 171-185.
    5. Bigelli, Marco & Croci, Ettore, 2013. "Dividend privileges and the value of voting rights: Evidence from Italy," Journal of Empirical Finance, Elsevier, vol. 24(C), pages 94-107.
    6. Bajo, Emanuele & Barbi, Massimiliano & Bigelli, Marco & Croci, Ettore, 2020. "Bolstering family control: Evidence from loyalty shares," Journal of Corporate Finance, Elsevier, vol. 65(C).

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    More about this item

    Keywords

    Dual class shares; Unification; Corporate governance; Expropriation; Insider trading; Equity structure;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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