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Dual class shares -- is India ready for it?

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  • Aditya Jadhav

Abstract

Market evidence suggest that a class of common stock with superior voting rights trades at systematically higher prices than an identical class of stock with inferior voting rights, as control over the firm grants the promoters some opportunity to receive a higher payoff. Differential voting rights class of shares may attract a certain class of investors who are only interested in the economic benefits of a company. It assists management in deterring potential rivals from winning a control and allows raising fresh capital for growth without giving up control. The value of controlling a firm derives from the fact that you believe that you or someone else would operate the firm differently from the way it is being run currently. Differential voting rights shares in different countries have indicated that voting rights are generally worth between 10% and 20% of the value of common stock. This article intends to create awareness about differential voting rights shares, to study the international as well as domestic experience and tries to examine the various factors that affect differential voting rights share prices.

Suggested Citation

  • Aditya Jadhav, 2012. "Dual class shares -- is India ready for it?," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 5(1), pages 124-135, November.
    • Handle: RePEc:taf:macfem:v:5:y:2012:i:1:p:124-135
    DOI: 10.1080/17520843.2011.643539
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