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Voting Rights and Market Reaction to Dual Class Common Stock Issues
Author(s) -
Shum Connie M.,
Davidson Wallace N.,
Glascock John L.
Publication year - 1995
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.1540-6288.1995.tb00833.x
Subject(s) - voting , shareholder , common stock , stock (firearms) , stock market , voting trust , restricted stock , economics , business , financial economics , law and economics , disapproval voting , law , finance , political science , corporate governance , engineering , mechanical engineering , paleontology , context (archaeology) , horse , politics , biology
This paper examines the return of the original class of common stock around the announcement of the creation of a second class of stock. As in previous studies, this one finds a generally ambiguous market reaction on the first public announcement. However, this paper offers new evidence that both the voting rights and the compensation for loss of voting rights are important determinants of the market's reaction. Specifically, it demonstrates that a second class stock issue that contains no compensation for the lost voting rights results in negative returns. When the original stockholders are compensated for lost voting rights, they experience positive abnormal returns.