Working Paper: CEPR ID: DP9619
Authors: Fabio Braggion; Mariassunta Giannetti
Abstract: An intense debate on the use of limited-voting shares developed in the UK during the 1950s. Using a unique hand-collected dataset, we show that negative news coverage of limited-voting shares is associated with an increase in the relative price of voting and limited-voting shares (the voting premium), even if no new material information has been revealed. The effects are stronger for firms that are difficult to arbitrage. Furthermore, a higher voting premium and negative news for dual class firms are followed by lower returns for voting shares than for limited-voting shares suggesting a reversion to fundamentals. Taken together, our results indicate that during this period investors? views may have limited firms? ability to use limited-voting shares and have broader implications on the effects of investors? views for stock prices and corporate governance.
Keywords: Corporate Governance; Dual Class Shares; Public Opinion
JEL Codes: G02; G1; G3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| negative news coverage (G14) | increase in voting premium (D72) |
| increase in voting premium (D72) | higher voting premium for illiquid stocks (G12) |
| negative news coverage (G14) | decrease in price of limited-voting shares (G34) |
| decrease in price of limited-voting shares (G34) | increase in voting premium (D72) |
| negative news coverage (G14) | lower returns for voting shares (G12) |