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Loyalty Shares with Tenure Voting - a Coasian bargain? Evidence from the Loi Florange Experiment

Author

Listed:
  • Marco Becht
  • Yuliya Kamisarenka
  • Anete Pajuste

Abstract

French listed companies can issue shares that confer two votes per share after a holding period of at least two years (loyalty shares with tenure voting rights). In 2014 the default rule changed from one-share-one-vote to loyalty shares. The Coase theorem predicts that ceteris paribus shareholders rewrite the corporate charter to preserve the pre-reform structure. The theorem also predicts that the proportion of loyalty shares in initial public offerings is unchanged. The paper shows that most one-share-one-vote companies reverted to the prereform contract. The exception were firms with a stake held by the French state. In initial public offerings, the new default rule had an impact; the proportion of loyalty share statutes increased from about forty to fifty percent after the passage of the law. Companies that kept the same statutes have a significantly higher market to book ratio than companies forced into a different regime. The evidence is broadly consistent with the predictions of the Coase theorem, but only in the absence of conflicted parties with veto power.

Suggested Citation

  • Marco Becht & Yuliya Kamisarenka & Anete Pajuste, 2018. "Loyalty Shares with Tenure Voting - a Coasian bargain? Evidence from the Loi Florange Experiment," Working Papers ECARES 2018-10, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:eca:wpaper:2013/270013
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    File URL: https://dipot.ulb.ac.be/dspace/bitstream/2013/270013/3/2018-10-BECHT_KAMISARENKA_PAJUSTE-loyalty.pdf
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    References listed on IDEAS

    as
    1. Stijn Claessens & Simeon Djankov & Joseph P. H. Fan & Larry H. P. Lang, 2002. "Disentangling the Incentive and Entrenchment Effects of Large Shareholdings," Journal of Finance, American Finance Association, vol. 57(6), pages 2741-2771, December.
    2. Patrick Bolton & Frédéric Samama, 2013. "Loyalty-Shares: Rewarding Long-term Investors," Journal of Applied Corporate Finance, Morgan Stanley, vol. 25(3), pages 86-97, September.
    3. Bhide, Amar, 1993. "The hidden costs of stock market liquidity," Journal of Financial Economics, Elsevier, vol. 34(1), pages 31-51, August.
    4. Edith Ginglinger & Jacques Hamon, 2012. "Ownership, control and market liquidity," Finance, Presses universitaires de Grenoble, vol. 33(2), pages 61-99.
    5. Yury Shevchenko & Bettina von Helversen & Benjamin Scheibehenne, 2014. "Change and status quo in decisions with defaults: The effect of incidental emotions depends on the type of default," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 9(3), pages 287-296, May.
    6. Bennedsen, Morten & Nielsen, Kasper Meisner, 2010. "Incentive and entrenchment effects in European ownership," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2212-2229, September.
    7. repec:dau:papers:123456789/9676 is not listed on IDEAS
    8. Chemmanur, Thomas J. & Jiao, Yawen, 2012. "Dual class IPOs: A theoretical analysis," Journal of Banking & Finance, Elsevier, vol. 36(1), pages 305-319.
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    More about this item

    Keywords

    Loyalty shares; tenure voting; time-phased voting; dual-class shares; one-shareone- vote; Coase theorem;

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