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Disentangling the Effect of Private and Public Cash Flows on Firm Value

Author

Listed:
  • Cristina Mabel Scherrer

    (Aarhus University and CREATES)

  • Marcelo Fernandes

    (Queen Mary University of London and FGV)

Abstract

This paper presents a simple model for dual-class stock shares, in which common shareholders receive both public and private cash flows (i.e. dividends and any private benefit of holding voting rights) and preferred shareholders only receive public cash flows (i.e. dividends). The dual-class premium is driven not only by the firm's ability to generate cash flows, but also by voting rights. We isolate these two effects in order to identify the role of voting rights on equity-holders' wealth. In particular, we employ a co-integrated VAR model to retrieve the impact of the voting rights value on cash flow rights. We find a negative relation between the value of the voting right and the preferred shareholders' wealth for Brazilian cross-listed firms. In addition, we examine the connection between the voting right value and market and firm specific risks.

Suggested Citation

  • Cristina Mabel Scherrer & Marcelo Fernandes, 2016. "Disentangling the Effect of Private and Public Cash Flows on Firm Value," Working Papers 800, Queen Mary University of London, School of Economics and Finance.
    • Handle: RePEc:qmw:qmwecw:800
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    References listed on IDEAS

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    Cited by:

    1. Marcelo Fernandes & Cristina M. Scherrer, 2018. "Price discovery in dual‐class shares across multiple markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(1), pages 129-155, January.

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    More about this item

    Keywords

    Private benefits; Voting right; Dual-class shares;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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