One Share, One Vote

Dual-class shares and the governance discount.

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351774_5472Two themes have dominated North American capital markets in the last five years: corporate governance and a desire for a better and more transparent financial reporting regime for publicly listed companies. In this paper, we focus on Canadian restricted voting share firms (RV firms) that have deviated from the traditional “one share-one vote” structure. They provide a very interesting backdrop against which one can assess the trade off between the operating performance, governance regime, agency costs and the interests of external shareholders. This examination is also of interest in the light of the recent announcement by the Toronto Stock Exchange (TSX) that it will no longer show the voting structure associated with the shares it lists.

In this paper, we are interested in four questions. First, is there a systematic difference between the characteristics of RV firms and non-RV (one share-one vote) firms controlling for the industry factor? Second, is there a difference between operating and stock market performance across these two types of firms? Third, can we detect differences in governance environments and, fourth, is there any evidence of agency costs as proxied by excess CEO pay? To answer these questions, we focus on a sample of 263 TSX-listed RV firms over the 1993 – 2004 period that include some of Canada’s well-known firms. Read the full paper here.

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