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Index membership vs. loss of voting power: The unification of dual-class shares

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  • Betzer, André
  • van den Bongard, Inga
  • Goergen, Marc

Abstract

A change in the index selection rules of Deutsche Börse provides a unique opportunity to investigate the drivers behind the decision to abolish dual-class shares. As of June 2002, selection is based on the market capitalization of the free-float of the more liquid share class rather than the overall market capitalization. Hence, firms have had to reassess the benefits from their dual-class shares by weighing them against the cost from foregone index weight associated with having two share classes. Our findings suggest that index membership significantly affects the controlling shareholder’s motivation to unify preferred and common stock.

Suggested Citation

  • Betzer, André & van den Bongard, Inga & Goergen, Marc, 2017. "Index membership vs. loss of voting power: The unification of dual-class shares," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 49(C), pages 140-153.
    • Handle: RePEc:eee:intfin:v:49:y:2017:i:c:p:140-153
    DOI: 10.1016/j.intfin.2017.03.003
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    More about this item

    Keywords

    Private benefits of control; Dual-class stock; Ownership structure; Corporate governance;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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