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Outlines the special characteristics of preferred shares in Germany, notes that ordinary shares are valued at substantially higher figures and presents a study of the pricing of both types for 58 German companies 1990‐1993. Refers to previous research to develop hypotheses on reasons for the common share premium and an explanatory model which is then applied to the data. Finds that larger premiums are associated with higher ownership concentration and lower trading but not to the proportion carrying voting rights or the cumulative preferred dividends in arrears; and that they are significantly reduced if a family or financial institution is a major shareholder. Goes on to show that where a family is the largest blockholder the premium increases with liquidity but for a financial institution, liquidity reduces the premium. Considers the underlying reasons for this and consistency with other research.

Finance.

Graduate/Under Graduate Progammes

The case presents the valuation gap between general equity and DVRs shares of TML. The case presents DVRs as an alternate asset class for investment for retail investors and shows its various characteristics taking the case of TML. The case presents global evidences of the valuation gaps and hence helps in making informed decisions. The case makes the reader perplex with a varied global evidence and then presents other data (increasing interest by institutional investors in DVRs of TML) which may help to take final decision “BUY or NOT”.

The readers will be able to recall “how do finance managers use a diverse type of equity for providing new sources of finance?” The readers will be able to describe the characteristics of differential voting right (DVR) shares. The participants will be able to present various reasons for the price difference between DVR shares and general equity shares. The readers will be in a position to analyze the price pattern of Tata Motors Limited (TML’s) DVR together with global experience. The participants will be able to justify the trade-off between extra dividend and loss of voting rights in the case of DVR shares.

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CSS 1: Accounting and Finance.

This chapter analyzes the market response to ticker symbol change of stocks with non-conventional voting structures (or multiple class shares, MCS). I find a significant drop (increase) in prices and liquidity (short-sale activity) of MCS stocks, with the most severe decrease being reported for the lower-voting class. This evidence suggests that investors revised downward the assessment of MCS stocks. Regression analysis shows that a significant part of the cross-sectional variation of the event-results is explained by firm's agency costs. Overall, the chapter stresses the importance of enhanced market transparency in curbing private benefits.

The purpose of this paper is to critically review the relevant literature from the perspective of dual-class firms and to provide suggestions for future research on dual-class firms, and on methodological issues that should be addressed in such research.

The research design consists of three parts: an introduction to dual-class firms (motivations for; firm life cycle effects) in Part 1; concerns with firms with such share class structures (valuation; governance; accounting and corporate policy issues) in Part 2; and some solutions or ways to accommodate the trade-offs involved with such share class structures (retention arguments; index/exchange exclusions; contractual provisions; external monitoring) in Part 3. Throughout the paper, the authors provide some critiques of existing studies, particularly from a methodological perspective, the authors’ opinion on the state of the literature and suggestions for future areas of research.

While motivations for the use of dual-class voting structures include flexibility so that the idiosyncratic vision of their entrepreneurs/founders can be pursued in a less encumbered fashion, greater innovation and long-term managerial orientation, there are many possible costs (e.g. underinvestment and managerial entrenchment) to this ownership structure. Nevertheless, the authors believe that such firms should have provisions in place that facilitate a reversion to a single-class structure longer term when such firms have become more mature, less dependent on the idiosyncratic vision of the entrepreneurs/founders at IPO and have attracted more managerial talent.

The literature arrives at no consensus on the benefits/drawbacks of this type of share ownership structure which means that many topics of research require further academic examination. The authors provide suggested directions for such future enquiries.

The purpose of this paper is to examine whether and how family ownership enhances or damages firm value.

The paper studies a sample of Canadian companies listed on the Toronto Stock Exchange (TSX) between 1999 and 2007 and apply multivariate regression with firm value as a dependent variable. The paper measures firm value as Tobin ' s Q and ROA based either on net income or EBITDA. The independent variables include family firm dummy and ownership percentage.

It is found that control-enhancing mechanisms which are often employed by family companies add value to companies. Furthermore, it is found that agency conflicts between ownership and management are less costly than those between majority and minority shareholders, suggesting that family ownership helps resolve the agency conflicts between ownership and management and in turn enhances firm value. Finally, it is found that family companies with founders as CEOs outperform those with descendants as CEOs.

The paper studies Canadian family firms; as such, the sample size is not relatively large. Nonetheless, the results should be generalized as Canada is one of the largest markets in the world and have high integration with the rest of the world.

The results suggest investors should invest in family ownership firms.

The paper shows whether firm ownership increases firm value and the determinant of family firm value.

We compare the governance characteristics of dual-class firms to a matched sample of single-class firms. Dual-class firms allow firms to separate voting and cash flow rights, frequently allowing management to control the voting rights while only having a small proportion of the cash flow rights. With the control of the voting rights, management has the ability to choose governance characteristics to further entrench itself or help protect the rights of the minority investors. We show that dual-class firms are less likely to have independent boards and have lower levels of institutional ownership. However, dual-class firms are more likely to have separate individuals as CEO and Chairman of the Board and less likely to have staggered boards, which are considered to be good governance characteristics.

Innovations in takeover financing, less restrictive regulatory requirements, and a general desire to enhance market position have led to a substantial increase in corporate takeover and restructuring activity. In response target firm managers have become increasingly active in devising defensive strategies and tactics designed to ward off hostile bidders. It is well‐ documented, however, that large wealth gains accrue to target firm shareholders in mergers and acquisitions. Thus the emergence of such terms as “shark repellents”, “poison pills”, and “greenmail”, raises the question of whose best interests are really being served by antitakeover measures.

The purpose of this paper is to test if relative asset purchase values (RAPVs) differ between single- and dual-class purchasers (not) differentiated by family ownership for Canadian firms.

The paper uses multivariate regressions and 2SLS estimations of simultaneous equations models with both continuous and dichotomous endogenous variables. Data on share structures and family involvements are hand collected.

RAPVs for dual-class purchasers are significantly different (larger) than their single-class counterparts only for family-controlled samples. Larger RAPVs for dual-class purchases are associated with higher degrees of dual-class structures, higher family ownerships and with boards with no more than one family member.

RAPV is important because of its common use as a primary determinant of the wealth effects of M&As, its use as an exchange-rate proxy in two-stage regressions used to determine the amount of abnormal returns attributable to short selling activity around M&A announcements, and its use as a channel for conveying information about deal complexity, seller’s bargaining power, additional monitoring benefits from purchase and/or greater challenges in incorporating a purchase into existing assets. Larger sample size would facilitate more differentiated examinations.

Findings imply that dual-class share structures assist family shareholders in elevating their control over corporate decisions involving asset purchases.

This paper furthers the authors’ knowledge about the effects of agency issues on corporate decisions.

It provides an extension and robustness test of the US evidence for asset purchases by providing evidence for Canada given its greater preponderance of families as the ultimate controlling shareholders, restricted or subordinated voting shares issued and pyramidal structures.

The purpose of this paper is to investigate the relationship among ownership structure, information disclosure and benefits of control under Lab‐experimental frame, based on the ownership structure in China's stock market.

Theoretical Shapley value of shareholders was used as the representative of control right, and benefits of control in different experimental treatments were studied.

Experimental results show: first, more counterbalance of shareholders' control rights, less benefits of their control right. Accordingly, more chance to form core alliance for the major shareholder with small shareholders, less chance for them to get control right; second, the effect of information on benefits of control are mainly reflected in forming and maintaining the alliance; third, Shapley value of the major shareholder and the information determine the alliance type; fourth, control premium may be the cost of keeping the major shareholder's benefits safe and fifth, imperfect information is not always bad, concealing information partly can improve the distribution efficiency of a corporation.

The paper provides experimental analysis of the behavioral logic behind the benefits of control, which would help to explain the relationship among ownership structure, information disclosure and benefits of control.

Most countries often have public companies with large controlling owners, typically a family. This empirical evidence aims to contrast with the classical view of the largest dispersed firm presented by Berle and Means and challenge the findings by Bhattacharya and Ravikumar, who predict that the shares held by families will decrease if an efficient financial market is put in place. Therefore, family firms represent an important group in the stock market today. Thus, the purpose of this paper is to analyze the effect of the family as a controlling owner on firms' performance, valuation and capital structure.

The paper reviews the current literature related to how family (taking into account specific governance characteristics such as family ownership, family control and family management) affects firms' performance and value.

The literature review showed that founder family control and professional (outside) management increase performance, whereas excess control via control enhancing mechanisms (such as dual class shares and pyramidal structures) and descendent management produce both lower valuation and performance. This evidence suggests that families have the incentives and the power to systematically expropriate wealth from minority shareholders.

Previous research shows that family firms on average perform better than non‐family firms. But this is a non‐linear relation due the fact that the relationship between family ownership and performance cannot be identified without distinguishing between control and cash‐flow rights. Thus, the literature review as a whole emphasizes that the incentives for the controlling shareholder to engage in expropriation are a function of the institutional framework in which the firm operates. So, for further research, it is important to investigate how family firms perform in different corporate governance systems. A policy implication is the necessity to improve minority shareholders' protection from the risk of expropriation by large shareholders.