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Dual Class Stock in Russia: What Explains the Price Differential between Common and Preferred Shares?

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Author Info
Alexander Muravyev

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Abstract

This paper aims to explain the large premium paid on common (voting) shares relative to preferred (non-voting) shares in the Russian stock market. Empirical analysis focuses on two main explanations relating the premium either to the voting right attached to common shares or to differences in liquidity between the two classes of stock. Two avenues through which the right to vote may give rise to the premium are distinguished. First, the presence of private benefits of control and the possibility of control contests may make the votes held by small investors pivotal, and therefore valuable. Second, non-voting shareholders may be expropriated as a class by voting shareholders. Regression analysis of RTS stock exchange data from 1997- 2005 provides support for the control contest model of the premium as well as for the liquidity argument. The study finds no evidence that the premium is related to expropriation of preferred shareholders as a class.

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Publisher Info
Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 680.

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Length: 35 p.
Date of creation: 2007
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Publication status: Published in: Emerging Markets Finance & Trade 45 (2009), 2, 21-43
Handle: RePEc:diw:diwwpp:dp680

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Find related papers by JEL classification:
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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  1. D Willer, 1997. "Corporate Governance and Shareholder Rights in Russia," CEP Discussion Papers dp0343, Centre for Economic Performance, LSE. [Downloadable!]
  2. Zingales, Luigi, 1995. "What Determines the Value of Corporate Votes?," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 1047-73, November. [Downloadable!] (restricted)
  3. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert Vishny, 1999. "Investor Protection and Corporate Valuation," Harvard Institute of Economic Research Working Papers 1882, Harvard - Institute of Economic Research. [Downloadable!]
    Other versions:
  4. Stoll, Hans R. & Whaley, Robert E., 1983. "Transaction costs and the small firm effect," Journal of Financial Economics, Elsevier, vol. 12(1), pages 57-79, June. [Downloadable!] (restricted)
  5. Anete Pajuste, 2005. "Determinants and consequences of the unification of dual-class shares," Working Paper Series 465, European Central Bank. [Downloadable!]
  6. Patrick Bolton & Marco Becht & Alisa Roell, 2002. "Corporate Governance and Control," NBER Working Papers 9371, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. Nicodano, Giovanna, 1998. "Corporate groups, dual-class shares and the value of voting rights," Journal of Banking & Finance, Elsevier, vol. 22(9), pages 1117-1137, September. [Downloadable!] (restricted)
  8. Rydqvist, Kristian, 1996. "Takeover bids and the relative prices of shares that differ in their voting rights," Journal of Banking & Finance, Elsevier, vol. 20(8), pages 1407-1425, September. [Downloadable!] (restricted)
  9. Shleifer, Andrei & Vishny, Robert W, 1997. " A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-83, June. [Downloadable!] (restricted)
    Other versions:
  10. Smith, Brian F. & Amoako-Adu, Ben, 1995. "Relative Prices of Dual Class Shares," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(02), pages 223-239, June. [Downloadable!]
  11. Amihud, Yakov & Mendelson, Haim, 1986. "Asset pricing and the bid-ask spread," Journal of Financial Economics, Elsevier, vol. 17(2), pages 223-249, December. [Downloadable!] (restricted)
  12. Zingales, Luigi, 1994. "The Value of the Voting Right: A Study of the Milan Stock Exchange Experience," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 7(1), pages 125-48. [Downloadable!] (restricted)
  13. Nenova, Tatiana, 2003. "The value of corporate voting rights and control: A cross-country analysis," Journal of Financial Economics, Elsevier, vol. 68(3), pages 325-351, June. [Downloadable!] (restricted)
  14. Chung, Kee H. & Kim, Jeong-Kuk, 1999. "Corporate ownership and the value of a vote in an emerging market," Journal of Corporate Finance, Elsevier, vol. 5(1), pages 35-54, March. [Downloadable!] (restricted)
  15. Denis, Diane K. & McConnell, John J., 2003. "International Corporate Governance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(01), pages 1-36, March. [Downloadable!]
  16. Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, 04. [Downloadable!] (restricted)
    Other versions:
  17. Muravyev Alexander, 2004. "The Puzzle of Dual Class Stock in Russia. Explaining the Price Differential between Common and Preferred Shares," EERC Working Paper Series 04-07e, EERC Research Network, Russia and CIS. [Downloadable!]
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