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Price Differentials between Dual‐class Stocks: Voting Premium or Liquidity Discount?
Author(s) -
Neumann Robert
Publication year - 2003
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/1468-036x.00223
Subject(s) - voting , market liquidity , stock (firearms) , dividend , monetary economics , economics , liquidity premium , differential (mechanical device) , financial economics , business , liquidity risk , finance , mechanical engineering , aerospace engineering , politics , political science , law , engineering
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.