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Reallocation of Voting Rights and Shareholders' Wealth

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  • Elizabeth Maynes
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    Abstract

    Theory suggests that reorganizing common shares into shares with different voting rights may reduce the effectiveness of corporate control mechanisms, decreasing firm value. Firms argue that creating a class of restricted (nonvoting or subordinate voting) equity may enhance firm value by improving liquidity, facilitating Canadian ownership and allowing the maintenance of the existing vote ownership. An event study of fifty-four proposals by Canadian firms to reorganize existing common shares into full voting and restricted classes finds that the reorganizations not associated with a change in dividends generate significantly negative abnormal returns, indicating that the reorganizations reduce firm value.

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    File URL: http://links.jstor.org/sici?sici=0008-4085%28199208%2925%3A3%3C538%3AROVRAS%3E2.0.CO%3B2-0
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    Bibliographic Info

    Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

    Volume (Year): 25 (1992)
    Issue (Month): 3 (August)
    Pages: 538-63

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    Handle: RePEc:cje:issued:v:25:y:1992:i:3:p:538-63

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    Cited by:
    1. Kryzanowski, Lawrence & Zhang, Hao, 1995. "Introduction of dual-class shares: Further evidence on Canadian pro-rata distributions," International Review of Financial Analysis, Elsevier, vol. 4(1), pages 67-79.
    2. Renée Adams & Daniel Ferreira, 2008. "One Share-One Vote: The Empirical Evidence," Review of Finance, European Finance Association, vol. 12(1), pages 51-91.

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