IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

A Regulation of Bids for Dual Class Shares. Implication: Two Shares { One Price

Listed author(s):
  • Bechmann, Ken L.

    (Department of Finance, Copenhagen Business School)

  • Raaballe, Johannes

    (Department of Management - University of Aarhus)

Registered author(s):

    This paper examines the consequences of a certain regulatory restriction on bids for dual class shares. Shares of di erent classes are often argued to have di erent prices because a premium will be paid to the superior voting shares in the case of a tender o er. This paper takes as given a setup where the shares in a rm are widely held and regulations require that a tender o er pays the same relative premium to all share classes. In this setup, it is shown that the shares of di erent classes will sell at the same price as long as there is a strictly positive probability thateither the current management issuÆciently strong or that a suÆciently strong rival will show up. Furthermore, under this condition the regulation is socially optimal in the sense that the management that gives the highest total rm value will be the management of the rm. Finally, theregulation is shown to favor (or protect) the holders of restricted voting shares and this is not necessarily at the expense of the holders of superior voting shares. If the weak condition above is not satis ed, the paper demonstrates the existence of a whole range of possible price equilibria. These equilibria can be decisive for whether the current management will continue or the rival will take over. The practical interest of this paper derives from the fact that some European countries have adopted regulatory restrictions on bids for dual class shares. This has more or less occurred due to proposed EU Directives. The regulation examined in this paper applies for example to tender o ers in Denmark and empirical results on the voting premium in Denmark are shown to be consistent with the theoretical results in this paper.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: no

    Paper provided by Copenhagen Business School, Department of Finance in its series Working Papers with number 2000-5.

    in new window

    Length: 37 pages
    Date of creation: 01 May 2000
    Handle: RePEc:hhs:cbsfin:2000_005
    Contact details of provider: Postal:
    Department of Finance, Copenhagen Business School, Solbjerg Plads 3, A5, DK-2000 Frederiksberg, Denmark

    Phone: +45 3815 3815
    Web page:

    More information through EDIRC

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:hhs:cbsfin:2000_005. 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: (Lars Nondal)

    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.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.