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Corporate Governance Rules and the Value of Control - A Study of German Dual-Class Share

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  • Ulrike Hoffmann-Burchardi

Abstract

The paper uses a dataset of German dual-class shares during 1988-1997 to study the relationship between corporate governance rules and the price differential between voting and non-voting stock. In a first step the paper discusses how mechanisms to separate control from cash-flow rights relate to the value of control. Secondly the paper studies the impact of a new takeover regulation which was adopted in Germany in 1995 and introduced the mandatory bid rule. The paper analyses how minority voting an non-voting shareholders participate in transfers of corporate control under the alternative regulatory structures pre- and post 1995. It is further shown that a mandatory bid requirement reduces the potential control value of voting stock by restricting the ration of control to cash-flow rights.

Suggested Citation

  • Ulrike Hoffmann-Burchardi, 1999. "Corporate Governance Rules and the Value of Control - A Study of German Dual-Class Share," FMG Discussion Papers dp315, Financial Markets Group.
    • Handle: RePEc:fmg:fmgdps:dp315
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    File URL: http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/fmgdps/dp315.pdf
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    Cited by:

    1. Karin Niehoff, 2016. "Price Discovery in Voting and Non-Voting Stocks," Schmalenbach Business Review, Springer;Schmalenbach-Gesellschaft, vol. 17(3), pages 285-307, December.
    2. 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.

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