Private Benefits of Control and Dual-Class Share Unifications

Abstract

This paper examines the decision to unify dual-class shares into a single class. Using a sample of firms from seven European countries, we find that measures of lower private benefits of control available to the controlling shareholders, such as low separation between control and cash flow rights, the presence of financial investors, and cross-listings, increase the likelihood of a unification of share classes. Unifications are also more likely in firms with higher growth opportunities that need external financing. Changes in the institutional environment aimed at limiting the powers of controlling shareholders are positively related to unifications. Increases in firm valuation are found for the year following unifications.

The Media and Firm Reputation Roles in Corporate Governance Improvements: Lessons from European Dual Class Share Unifications

“…This drove many mature dual class firms to voluntary abandon their dual class structure. Maury and Pajuste (2011) show that when future growth opportunities are attractive, it would be worthwhile for some controlling shareholders to give up the extra private benefits afforded by the dual class structure, in return for the abundant extra cash flows promised by the attractive investment opportunity.…”

“…The "external financing" motive appears relevant and important in explaining voluntary decisions of firms to unify their dual class shares. Maury and Pajuste (2011) report that about 41 percent of the unifying firms issued equity following the unification. (Other firms might have conceived external financing as well.)…”

“…In this study, we examine voluntary (firm-initiated) dual class share unifications in Europe. Previous studies (e.g., Maury & Pajuste, 2011) establish that an important motive in many voluntary unifications is firm's desire to improve its public image ahead of a seasoned equity offering. (Over 40 percent of unifying firms issued equity after the unification.)…”

Ownership-Control Discrepancy and Dividend Policy: Evidence from Tunisia

“…Controlling shareholders may pay themselves excessive compensation, the power to elect board members, the ability to consume perquisites and to transfer resources at the expense of the firm and minority shareholders (Grosman and Hard, 1988;Harris and Raviv, 1988;Maury and Pajuste, 2010). Therefore, the relevant agency problem is expropriation of minority shareholders by the large shareholders.…”

Three Essays on Dual-Class Stock Structure

“…In addition, Dittmann and Ulbricht (2008) find a positive and significant increase in firm value after the unification of German dual-class stocks. Among other empirical works on dual-class unification, is a study by Maury and Pajuste (2011). They examine dual-class unifications in seven European countries and focus on identification of determinants and consequences of unification.…”