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Relative Prices of Dual Class Shares

Published online by Cambridge University Press:  06 April 2009

Brian F. Smith  and
Ben Amoako-Adu
Brian F. Smith
Affiliation:
Mutual Group Financial Services Research Centre, School of Business and Economics, Wilfrid Laurier University, Waterloo, Ontario, Canada.
Ben Amoako-Adu
Affiliation:
Mutual Group Financial Services Research Centre, School of Business and Economics, Wilfrid Laurier University, Waterloo, Ontario, Canada.
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Abstract

Empirical studies of dual class shares indicate that superior voting shares (SVS) sell at a premium relative to their counterpart restricted shares (RVS). This paper uses Toronto Stock Exchange data to show that SVS price premium over RVS reflects the expected takeover premium paid to shareholders outside the control block. Thus, marginal shareholders pay a higher SVS price in anticipation of receiving a differential takeover bid as suggested by the extra merger hypothesis. Further analysis indicates that voting power increases the price premium while ownership, size, and the higher trading liquidity of RVS are inversely related to the premium.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 30 , Issue 2 , June 1995 , pp. 223 - 239
Copyright
Copyright © School of Business Administration, University of Washington 1995

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