Large shareholder diversification, corporate risk taking, and the benefits of changing to differential voting rights

Scott W. Bauguess, Myron B. Slovin and Marie E. Sushka

Journal of Banking & Finance, 2012, vol. 36, issue 4, 1244-1253

Abstract: We show how the change to differential voting rights allows dominant shareholders to retain control even after selling substantial economic ownership in the firm and diversifying their wealth. This unbundling of cash flow and control rights leads to more dispersed economic ownership and a closer alignment of dominant and dispersed shareholder interests. When insiders sell sizeable amounts of their economic interests, firms increase capital expenditures, strengthen corporate focus, divest non-core operations, and generate superior industry-adjusted performance. The change to differential voting rights both fosters corporate control activity and creates higher takeover premiums that are paid equally to all shareholders.

Keywords: Differential voting rights; One-share-one-vote; Tag-along rights (search for similar items in EconPapers)
JEL-codes: G34 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:36:y:2012:i:4:p:1244-1253

DOI: 10.1016/j.jbankfin.2011.11.009

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