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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.

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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    File URL: https://doi.org/10.1111/j.1755-053X.2008.00032.x
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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. repec:eee:jfinin:v:37:y:2019:i:c:p:15-27 is not listed on IDEAS
    3. 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.
    4. 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.
    5. 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.
    6. Aiyesha Dey & Valeri Nikolaev & Xue Wang, 2016. "Disproportional Control Rights and the Governance Role of Debt," Management Science, INFORMS, vol. 62(9), pages 2581-2614, September.
    7. 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.
    8. Belén Villalonga & Raphael Amit, 2010. "Family Control of Firms and Industries," Financial Management, Financial Management Association International, vol. 39(3), pages 863-904, September.
    9. 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.
    10. 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.
    11. 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.
    12. 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.
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