Unifications of Dual-Class Shares in Germany Empirical Evidence on the Effects ofRelated Changes in Ownership Structure, Market Value, and Bid-Ask Spreadsnce from the German Stock Market
This paper examines the unification of non-voting preference shares into a one share-one vote structure using a sample of all German dual-class companies from 1987 until 2003. We test several hypotheses with regard to the reasons for the abolition of preference shares. First, as the separation of ownership and control is viewed as a means of keeping control over a firm, a detailed analysis of changes in the ownership structure of firms abolishing their preference shares is performed. Indeed, family firms losing the majority of control by unifying their share classes seem to restrain from this step by selling controlling blocks before the unification. Second, dualclass firms may comprise higher agency costs due to the violation of the one share-one vote rule and, thus, face higher costs of equity capital. We apply two methods for estimating changes in the cost of capital of unifying firms : (i) we perform an event study to examine the market reaction to the announcement of share class unifications and (ii) we investigate bid-ask spreads before and after the unification computed from intraday trading data to analyze liquidity effects on the cost of capital associated with the unification. In sum, the unification of dual-class preference shares into single -class voting shares seems to be strictly shareholder value increasing. Dual-class firms seem to be able to significantly reduce their cost of capital through unification, because of increases in firm value as well as a substantial reduction in bid-ask spreads.
|Date of creation:||Oct 2004|
|Date of revision:||Nov 2005|
|Contact details of provider:|| Web page: http://www.SwissFinanceInstitute.ch|
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:chf:rpseri:rp0612. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marilyn Barja)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.