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Do Voting Rights Affect Institutional Investment Decisions? Evidence from Dual-Class Firms

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  • Kai Li
  • Hernán Ortiz-Molina
  • Xinlei Zhao

Abstract

"We examine whether, and to what extent, shareholder voting rights affect institutional investment decisions. We find that institutional ownership in dual-class firms is significantly lower than it is in single-class firms after controlling for other determinants of institutional investment. Although institutions of all types hold fewer shares of dual-class firms, this avoidance is more pronounced for long-term investors with strong fiduciary responsibilities than for short-term investors with weak fiduciary duties. Following the unification of dual-class shares into a single class, institutional investors increase their shareholdings in the unifying firm. Overall, our results suggest that voting rights are an important determinant of institutional investment decisions." Copyright (c) 2008 Financial Management Association International..

Suggested Citation

  • Kai Li & Hernán Ortiz-Molina & Xinlei Zhao, 2008. "Do Voting Rights Affect Institutional Investment Decisions? Evidence from Dual-Class Firms," Financial Management, Financial Management Association International, vol. 37(4), pages 713-745, December.
  • Handle: RePEc:bla:finmgt:v:37:y:2008:i:4:p:713-745
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    References listed on IDEAS

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    1. John R. Graham & Roni Michaely & Michael R. Roberts, 2003. "Do Price Discreteness and Transactions Costs Affect Stock Returns? Comparing Ex-Dividend Pricing before and after Decimalization," Journal of Finance, American Finance Association, vol. 58(6), pages 2611-2636, December.
    2. Auerbach, Alan J. & Hassett, Kevin A., 2003. "On the marginal source of investment funds," Journal of Public Economics, Elsevier, pages 205-232.
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    4. Clemens Sialm, 2005. "Tax Changes and Asset Pricing: Time-Series Evidence," NBER Working Papers 11756, National Bureau of Economic Research, Inc.
    5. Auerbach, Alan J., 2002. "Taxation and corporate financial policy," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 19, pages 1251-1292 Elsevier.
    6. James Poterba, 2004. "Taxation and Corporate Payout Policy," American Economic Review, American Economic Association, vol. 94(2), pages 171-175, May.
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    Cited by:

    1. Minnick, Kristina & Rosenthal, Leonard, 2014. "Stealth compensation: Do CEOs increase their pay by influencing dividend policy?," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 435-454.
    2. Li, Ting & Zaiats, Nataliya, 2017. "Information environment and earnings management of dual class firms around the world," Journal of Banking & Finance, Elsevier, vol. 74(C), pages 1-23.
    3. Jordan, Bradford D. & Liu, Mark H. & Wu, Qun, 2014. "Corporate payout policy in dual-class firms," Journal of Corporate Finance, Elsevier, vol. 26(C), pages 1-19.
    4. Amoako-Adu, Ben & Baulkaran, Vishaal & Smith, Brian F., 2011. "Executive compensation in firms with concentrated control: The impact of dual class structure and family management," Journal of Corporate Finance, Elsevier, vol. 17(5), pages 1580-1594.
    5. Thomas O'Connor & Thomas Flavin, 2013. "The Effects of Ownership Structure on Corporate Financing Decisions: Evidence from Stock Market Liberalization," International Review of Finance, International Review of Finance Ltd., vol. 13(3), pages 383-405, September.
    6. Ansari, Iram Fatima & Goergen, Marc & Mira, Svetlana, 2014. "The determinants of the CEO successor choice in family firms," Journal of Corporate Finance, Elsevier, vol. 28(C), pages 6-25.
    7. Lucy Lim, 2016. "Dual-class versus single-class firms: information asymmetry," Review of Quantitative Finance and Accounting, Springer, vol. 46(4), pages 763-791, May.
    8. Braggion, Fabio & Giannetti, Mariassunta, 2013. "Public Debate and Stock Prices: Evidence from the Voting Premium," CEPR Discussion Papers 9619, C.E.P.R. Discussion Papers.
    9. André Schmidt, 2017. "Determinants of Corporate Voting – Evidence from a Large Survey of German Retail Investors," Schmalenbach Business Review, Springer;Schmalenbach-Gesellschaft, vol. 18(1), pages 71-103, February.
    10. repec:eee:mulfin:v:41:y:2017:i:c:p:47-60 is not listed on IDEAS
    11. repec:eee:ecofin:v:42:y:2017:i:c:p:374-392 is not listed on IDEAS

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