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Restricted Voting Stock, Acquisition Premiums, and the Market Value of Corporate Control
Author(s) -
Megginson William L.
Publication year - 1990
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.1990.tb00791.x
Subject(s) - shares outstanding , voting , stock dilution , insider , share price , short interest ratio , common stock , market liquidity , market share , monetary economics , business , financial economics , valuation (finance) , market value , economics , stock market , corporate governance , finance , shareholder , market maker , stock exchange , paleontology , context (archaeology) , horse , politics , biology , political science , law
This paper examines the valuation and financial histories of 152 British firms that have two or more common share classes with differential voting rights outstanding at some time between 1955 and 1982. Over 16,000 monthly price pairs are examined, and on average, the superior voting (SV) shares market prices exceed those of the otherwise equivalent class of restricted voting (RV) shares by 13.3 percent. Liquidity factors, if anything, attenuate this result since RV shares trade much more frequently than SV shares. Forty‐three of the sample companies are acquired while they have multiple share classes outstanding, and a higher price is paid for the SV share class than for the RV share class in 37 cases. The SV share price premium is found to be positively related to insider holdings of SV shares and negatively related to insider holdings of RV shares.