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The long-term valuation effects of voluntary dual class share unifications

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  • Lauterbach, Beni
  • Pajuste, Anete

Abstract

We study 121 voluntary dual class share unification in Europe during 1996–2009, and uncover evidence suggesting a positive valuation response to governance improvements and a negative valuation response to possible financial tunneling. Corporate governance improvement is attained by abolishing the wedge between ownership and voting rights and by significantly decreasing controlling shareholders' voting power. Financial tunneling is suspected when some controlling shareholders use the unification hype to sell part or all of their holdings at inflated prices. On average, the corporate governance positive valuation effects prevail, and voluntary unifications are accompanied by a statistically and economically significant increase of Tobin's Q.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:corfin:v:31:y:2015:i:c:p:171-185
    DOI: 10.1016/j.jcorpfin.2015.02.004
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    References listed on IDEAS

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    Cited by:

    1. Alexander A. Muravyev & Nikolay S. Telyatnikov, 2024. "Dual Class Stock Companies: Global Experience and Russian Practice," Journal of Applied Economic Research, Graduate School of Economics and Management, Ural Federal University, vol. 23(3), pages 801-832.
    2. 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.
    3. Li, Ting & Zaiats, Nataliya, 2017. "Information environment and earnings management of dual class firms around the world," Journal of Banking & Finance, Elsevier, vol. 74(C), pages 1-23.
    4. Palas, Rimona & Solomon, Dov & Gafni, Dalit & Baum, Ido, 2023. "Does wedge size matter? Financial reporting quality and effective regulation of dual-class firms," Finance Research Letters, Elsevier, vol. 54(C).
    5. Huang, Shengyuan & Li, Junhong & Yang, Xiaoguang & Zhou, Ye, 2024. "Enhancing external oversight: The complementary role of regulatory minority shareholders in China," Finance Research Letters, Elsevier, vol. 65(C).
    6. Lin, James Juichia & Shi, Wei-Zhong & Tsai, Li-Fang & Yu, Min-Teh, 2022. "Corporate cash and the Firm's life-cycle: Evidence from dual-class firms," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 27-48.
    7. Bajo, Emanuele & Barbi, Massimiliano & Bigelli, Marco & Croci, Ettore, 2020. "Bolstering family control: Evidence from loyalty shares," Journal of Corporate Finance, Elsevier, vol. 65(C).
    8. Taylan Mavruk & Conny Overland & Stefan Sjögren, 2020. "Keeping it real or keeping it simple? Ownership concentration measures compared," European Financial Management, European Financial Management Association, vol. 26(4), pages 958-1005, September.

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    More about this item

    Keywords

    Corporate governance improvements; Dual class shares; Financial tunneling;
    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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