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The Puzzle of Dual Class Stock in Russia. Explaining the Price Differential between Common and Preferred Shares

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  • Muravyev Alexander

Abstract

This paper attempts to explain a large premium paid on common (voting) shares relative to preferred (non-voting) shares in the Russian stock market. Empirical analysis focuses on two main explanations relating the premium either to the voting right attached to common shares or to differences in liquidity between the two classes of stock. Two avenues through which the right to vote may give rise to the premium are distinguished. First, the presence of private benefits of control and the possibility of control contests may make the votes held by small investors pivotal, and therefore valuable. Second, non-voting shareholders may be expropriated as a class by voting shareholders. Case studies and regression analysis of RTS stock exchange data from 1997-2003 provide support for the control contest model of the premium as well as for the liquidity argument. The study finds no evidence that the premium is related to expropriation of preferred shareholders as a class.

Suggested Citation

  • Muravyev Alexander, 2004. "The Puzzle of Dual Class Stock in Russia. Explaining the Price Differential between Common and Preferred Shares," EERC Working Paper Series 04-07e, EERC Research Network, Russia and CIS.
    • Handle: RePEc:eer:wpalle:04-07e
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    Cited by:

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    3. Alexander Muravyev, 2007. "Dual Class Stock in Russia: What Explains the Price Differential between Common and Preferred Shares?," Discussion Papers of DIW Berlin 680, DIW Berlin, German Institute for Economic Research.

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    More about this item

    Keywords

    Russia; dual-class stock; voting premium; ownership structure; corporate governance;
    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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