Price Differentials between Dual‐class Stocks: Voting Premium or Liquidity Discount?

Robert Neumann

European Financial Management, 2003, vol. 9, issue 3, 315-332

Abstract: A series of papers suggest that private benefits can explain the price differentials between stock classes carrying different voting rights. However, in Denmark the premium is negative for several firms over long periods. This indicates that in the absence of takeover contests, where the voting right becomes crucial in a transfer of corporate control, the price differential in stock classes with identical dividend rights is more likely to reflect investors’ liquidity risks. Whereas the existing literature tends to focus primarily on corporate control‐related explanations, this paper documents the impact of liquidity on price spreads between dual‐class shares.

Date: 2003
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