Large shareholder diversification, corporate risk taking, and the benefits of changing to differential voting rights

Scott W. Bauguess, Myron B. Slovin, Marie Sushka

Research output: Contribution to journalArticle

14 Citations (Scopus)

Abstract

We show how the change to differential voting rights allows dominant shareholders to retain control even after selling substantial economic ownership in the firm and diversifying their wealth. This unbundling of cash flow and control rights leads to more dispersed economic ownership and a closer alignment of dominant and dispersed shareholder interests. When insiders sell sizeable amounts of their economic interests, firms increase capital expenditures, strengthen corporate focus, divest non-core operations, and generate superior industry-adjusted performance. The change to differential voting rights both fosters corporate control activity and creates higher takeover premiums that are paid equally to all shareholders.

Original languageEnglish (US)
Pages (from-to)1244-1253
Number of pages10
JournalJournal of Banking and Finance
Volume36
Issue number4
DOIs
StatePublished - Apr 2012

Fingerprint

Large shareholders
Corporate diversification
Voting rights
Shareholders
Risk taking
Economics
Ownership
Takeover premium
Control rights
Alignment
Industry
Capital expenditures
Insider
Wealth
Cash flow rights
Corporate control
Unbundling

Keywords

  • Differential voting rights
  • One-share-one-vote
  • Tag-along rights

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance

Cite this

Large shareholder diversification, corporate risk taking, and the benefits of changing to differential voting rights. / Bauguess, Scott W.; Slovin, Myron B.; Sushka, Marie.

In: Journal of Banking and Finance, Vol. 36, No. 4, 04.2012, p. 1244-1253.

Research output: Contribution to journalArticle

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