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Dual Class Stock in Russia: Explaining a Pricing Anomaly

  • Alexander Muravyev

This paper studies the determinants of the unusually high and volatile price differential between common (voting) shares and preferred (nonvoting) shares in Russia's emerging stock market. It focuses on three potential explanations for the price spread between these two classes of stock: the control contest model of the voting premium, the inferior liquidity of preferred shares, and the risk of expropriation of preferred shareholders as a class. The regression analysis, based on data from 1997 to 2005, supports the control contest explanation and the liquidity argument. The hypothesis of expropriation of preferred shareholders as a class receives limited support, and only in the early period of the Russian stock market's development. The paper addresses the issue of structural breaks in the evolution of the price differential, related to the 1998 financial crisis and to improvements in investor protection in Russia in the early 2000s. It also provides new estimates of the magnitude of the private benefits of control in Russian companies.

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Article provided by M.E. Sharpe, Inc. in its journal Emerging Markets Finance and Trade.

Volume (Year): 45 (2009)
Issue (Month): 2 (March)
Pages: 21-43

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Handle: RePEc:mes:emfitr:v:45:y:2009:i:2:p:21-43
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  1. 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.
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  3. Stanislav Anatolyev & Dmitry Shakin, 2006. "Trade intensity in the Russian stock market:dynamics, distribution and determinants," Working Papers w0070, Center for Economic and Financial Research (CEFIR).
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  5. 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.
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  7. Amihud, Yakov & Mendelson, Haim, 1986. "Asset pricing and the bid-ask spread," Journal of Financial Economics, Elsevier, vol. 17(2), pages 223-249, December.
  8. Pajuste, Anete, 2005. "Determinants and consequences of the unification of dual-class shares," Working Paper Series 0465, European Central Bank.
  9. 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.
  10. 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.
  11. Doidge, Craig, 2004. "U.S. cross-listings and the private benefits of control: evidence from dual-class firms," Journal of Financial Economics, Elsevier, vol. 72(3), pages 519-553, June.
  12. Sanford J. Grossman & Oliver D. Hart, 1987. "One Share/One Vote and The Market for Corporate Control," Working papers 440, Massachusetts Institute of Technology (MIT), Department of Economics.
  13. Anatolyev, Stanislav, 2008. "A 10-year retrospective on the determinants of Russian stock returns," Research in International Business and Finance, Elsevier, vol. 22(1), pages 56-67, January.
  14. 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.
  15. Carvalhal da Silva, Andre & Subrahmanyam, Avanidhar, 2007. "Dual-class premium, corporate governance, and the mandatory bid rule: Evidence from the Brazilian stock market," Journal of Corporate Finance, Elsevier, vol. 13(1), pages 1-24, March.
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