Security-voting structure and bidder screening

This paper demonstrates that non-voting shares can promote takeovers. When the bidder has private information, shareholders may refuse to tender because they suspect to sell at an ex post unfavourable price. The ensuing friction in the sale of cash flow rights can prevent an efficient change of cont...

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Bibliographic Details
Published in:Journal of financial intermediation 2011-07, Vol.20 (3), p.458-476
Main Authors: At, Christian, Burkart, Mike, Lee, Samuel
Format: Article
Language:English
Subjects:
Asymmetric information
Bidders
Bidding
Cash flow
Corporate governance
Economics and Finance
Financial theory
Humanities and Social Sciences
One share – one vote
Shareholder voting
Stockholders
Studies
Tender offers
Tender offers One share - one vote Asymmetric information
Voters
Voting rights
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Summary:This paper demonstrates that non-voting shares can promote takeovers. When the bidder has private information, shareholders may refuse to tender because they suspect to sell at an ex post unfavourable price. The ensuing friction in the sale of cash flow rights can prevent an efficient change of control. Separating cash flow and voting rights alters the degree of cross-subsidization among bidder types. It can therefore be used as an instrument to promote takeover activity and to discriminate between efficient and inefficient bidders. The optimal fraction of non-voting shares decreases with managerial ability, implying an inverse relationship between firm value and non-voting shares.
ISSN:1042-9573
1096-0473
1096-0473
DOI:10.1016/j.jfi.2010.10.001