| This work examines control value in listed corporations, its measurement and determinants. Control value is unobservable for single-class firms; however, firms with two share classes with differential voting rights (dual-class firms) make it possible to isolate vote and corporate control value.; Chapter 1 overviews the incidence of dual-class firms in the largest stock markets, their security-voting structures, associated regulation, and ownership patterns. Dual-class firms are popular around the world, and are a hotly-debated regulatory issue. Those companies usually concentrate majority control in the multiple-voting class. Their ownership is significantly more concentrated than that of listed single-class firms. Their owners govern alone. Control is held with a quarter of the firm capital. Three-quarters of dual-class firms are family-controlled and managed.; Chapter 2 measures corporate control benefits, in a sample of 661 dual-class firms in 18 countries, in 1997. Control benefits are related to observable stock market measures using a control contest model. Control value is measured consistently across countries, controlling for takeover probability, block-holding costs, and dividend and liquidity differences between the share classes. Control value, or total value of control block votes, ranges from zero in Denmark to 50% of firm market value in Mexico. The legal environment, law enforcement, investor protection, takeover regulations, and power-concentrating Corporate Charter provisions, explains 76% of the cross-country control value variation.; Chapter 3 shows that corporate control value depends on changes in minority investor protection, on a sample of Brazilian dual-class firms. Control values double in response to Law 9457/1997, which weakens minority shareholder protection, and return to pre-1997 levels after CVM Instruction 299/1999 reinstates some of the minority protection rules scrapped by the previous legal change. The effect of legal changes on control value is robust, and is not due to underlying changes in the intensity of acquisition activity, the privatization wave, or the economic downturn in the late 1990s. Voting and non-voting share price movements during the period are consistent with the hypotheses that (1) majority shareholders share some of the control benefits with minority voteholders, and (2) Majority shareholders increase expropriation activity during the period, especially as concerns the value of non-voting equity.; Chapter 4 discusses further research ideas provoked by this work. Promising avenues for future inquiry are (1) determinants of the decision to issue dual-class shares; (2) time behavior of control value; and (3) divisibility of control benefits among corporate owners. |
