Control premium

Abstract: I study the large premium (82 percent) attributed to voting shares on the Milan Stock Exchange The premium varies according to the ownership structare and the concentration of the voting rights, and it can be rationalized in the presence of enormous private benefits of control A case study seems to indicate that in Italy private benefits of control can easily be worth more than 60 percent of the value of nonvoting equity A tentative explanation for these findings is provided Traditional finance theory disregards the value of voting rights in pricing common stock In most cases this omission does not seem harmful Many studies of differential voting stocks in different countries have indicated that voting rights are generally worth between 10 percent and 20 percent of the value of common stock’ The Italian evidence I present differs sharply from this view In Italy voting shares that have inferior dividend rights trade at an average premium

Abstract: During the 1990's, the phenomenon of cross-listing by issuers on international exchanges accelerated, with the consequence in the case of some emerging markets that trading followed, draining the original market of its liquidity. Traditionally, cross-listing has been viewed as an attempt to break down market segmentation and reach trapped pools of liquidity in distant markets. The globalization of financial markets, however, renders this explanation increasingly dated. A superior explanation is "bonding:" issuers migrate to U.S. exchanges in particular because by voluntarily subjecting themselves to the U.S.'s higher disclosure standards and greater threat of enforcement (both by public and private means), they partially compensate for weak protection of minority investors under their own jurisdiction's law and also credibly signal their intention to make fuller disclosure, thereby achieving a higher market valuation and a lower cost of capital. Still, many issuers who are eligible to cross-list do not do so. Increasing evidence suggests that cross-listing firms are significantly different from firms in the same jurisdiction that do not cross-list, most notably in that the former have higher growth prospects and are willing to sacrifice some of the private benefits of control to obtain equity finance. Conversely, firms that do not cross-list typically have controlling shareholders who have less interest in stock market valuation because they anticipate selling only in a control transaction at a control premium that they will disproportionately capture. As a result, specialized markets seem likely to persist in order to accommodate both firms that wish to offer superior protections to minority investors and those that prefer to cater to controlling shareholders who want to continue to realize the private benefits of control. Path dependency then may persist. The latest developments in this new form of regulatory competition have been both (i) the creation of new "high disclosure" exchanges in emerging markets, and (ii) the enactment of reform legislation intended to protect minority shareholders by jurisdictions that have seen their securities markets lose liquidity to international exchanges. Both efforts seek to share control premia with minority shareholders in order to encourage equity investment. However, such efforts appear to be impeded by the continuing willingness of U.S. exchanges to waive governance listing requirements that are mandatory for their domestic firms in the case of foreign firms. Finding this new form of regulatory competition to be desirable, this article argues that its distinguishing characteristic is that it is "exit-less" (and thus differs from the "issuer choice" model of regulatory competition), and it recommends that the current broad exemption under which U.S. exchanges waive all governance listing requirements for foreign issuers should be reconsidered.

Abstract: This paper studies the determinants of the value of voting rights in U S corporations Results support the hypothesis that the price of a vote is determined by the expected additional payment vote holders will receive for their votes in case of a control contest The size of this differential payment is a function of the probability that a vote is pivotal in a control contest and the magnitude of the private benefits obtainable by controlling the company Simple proxies for these two factors explain up to 30 percent of the variation of the voting premium across companies and through time My findings also suggest that the value of managerial perquisites are, at least partially, reflected in the price of votes