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The one‐share‐one‐vote‐rule and managerial compensation
Author(s) -
Teall John L.
Publication year - 1997
Publication title -
review of financial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 41
eISSN - 1873-5924
pISSN - 1058-3300
DOI - 10.1016/s1058-3300(97)90007-0
Subject(s) - capitalization , compensation (psychology) , grossman , economics , class (philosophy) , empirical evidence , dual (grammatical number) , empirical research , financial economics , business , computer science , psychology , art , philosophy , linguistics , literature , epistemology , artificial intelligence , keynesian economics , psychoanalysis
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.