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The one‐share‐one‐vote‐rule and managerial compensation

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  • John L. Teall

Abstract

Firms listed in the United Kingdom, Sweden, Canada, Israel, and elsewhere frequently issue multiple classes of shares, while countries such as France and Italy have traditionally prohibited dual‐class capitalizations. Finland, Sweden and Denmark place restrictions on vote ratios between share classes. Several theoretical papers, notably Grossman and Hart (1988) and Harris and Raviv (1988) offer theoretical evidence for the optimality of the One‐Share‐One‐Vote rule, though the empirical evidence is mixed. The purpose of this paper is to integrate the important impact of managerial compensation into the capitalization decision. Theoretical evidence offered in this paper suggests that the opportunity to vary managerial compensation can lead to the optimality of dual‐class capitalization. Hence, there may be little merit to the regulation of multiple class capitalizations.

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  • John L. Teall, 1997. "The one‐share‐one‐vote‐rule and managerial compensation," Review of Financial Economics, John Wiley & Sons, vol. 6(2), pages 211-223.
    • Handle: RePEc:wly:revfec:v:6:y:1997:i:2:p:211-223
    DOI: 10.1016/S1058-3300(97)90007-0
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    References listed on IDEAS

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    1. Grossman, Sanford J. & Hart, Oliver D., 1988. "One share-one vote and the market for corporate control," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 175-202, January.
    2. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    3. Ang, James S & Megginson, William L, 1989. "Restricted Voting Shares, Ownership Structure, and the Market Value of Dual-Class Firms," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 12(4), pages 301-318, Winter.
    4. Partch, M. Megan, 1987. "The creation of a class of limited voting common stock and shareholder wealth," Journal of Financial Economics, Elsevier, vol. 18(2), pages 313-339, June.
    5. Levy, Haim, 1983. "Economic Evaluation of Voting Power of Common Stock," Journal of Finance, American Finance Association, vol. 38(1), pages 79-93, March.
    6. Easterbrook, Frank H & Fischel, Daniel R, 1983. "Voting in Corporate Law," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 395-427, June.
    7. Blair, Douglas H & Golbe, Devra L & Gerard, James M, 1989. "Unbundling the Voting Rights and Profit Claims of Common Shares," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 420-443, April.
    8. James S. Ang & William L Megginson, 1989. "Restricted Voting Shares, Ownership Structure, And The Market Value Of Dual-Class Firms," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 12(4), pages 301-318, December.
    9. Harris, Milton & Raviv, Artur, 1988. "Corporate governance : Voting rights and majority rules," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 203-235, January.
    10. Moyer, R. Charles & Chatfield, Robert E. & Sisneros, Phillip M., 1989. "Security Analyst Monitoring Activity: Agency Costs and Information Demands," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(4), pages 503-512, December.
    11. DeAngelo, Harry & DeAngelo, Linda, 1985. "Managerial ownership of voting rights : A study of public corporations with dual classes of common stock," Journal of Financial Economics, Elsevier, vol. 14(1), pages 33-69, March.
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