Шабалин_резюме_ENG_финал (1137925)
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National Research University Higher School of EconomicsShabalin Pavel GrigorievichTHE DETERMINANTS OF THE PRICE DIFFERENCE BETWEENSHARES WITH DIFFERENT VOTING RIGHTSPhD Dissertation Summaryfor the purpose of obtainingPhilosophy Doctor in Economics HSEAcademic Supervisor:Teplova T.V., PhD, ProfessorJEL: G32, G34, G38Moscow – 20182Motivation. The deviation from «one share – one vote» rule is one of thecontrol enhancing mechanisms in a company and it is widely used both in developedand emerging markets. Shares with multiple voting rights, shares with restrictedvoting rights and shares without voting rights are possible deviations from «oneshare – one vote» rule.
The United States, France, Sweden and Canada are the mainmarkets of dual-class shares with a total capitalization of $5 trillion. The dual-classshare structure is mostly employed in the high-tech sector (Google, Facebook,Linkedin, Trip Advisor), but it is also widely used by «mature» companies (Ford,Berkshire Hathaway).Regulation of the issuance and prevalence of dual-class shares differ acrosscountries significantly. The United States is the most loyal jurisdiction, while themost stringent legal restrictions are set in Israel. Nevertheless, in recent yearsfinancial regulators and stock exchanges are competing for issuers, providing moreflexibility in the use of the dual-class share structures, which facilitatesdissemination of these instruments in the financial market.There is a running debate on the efficiency of dual-class share structure atmajor corporate governance centers – Harvard and Stanford Universities [Bebchuk,Kastiel, 2017; Winden, 2017].«Control premium» can be defined as the price difference between commonand preference shares («voting premium», «spread» terms are also employed in thisresearch).
In this research we have used preferred shares instead of nonvoting stocksin order to estimate control premium for several reasons. First, the research isconducting in countries (Brazil, Germany, Russia and South Korea) where theissuance of multiple voting shares is prohibited. Second, due to legal restrictions forissuance of common stocks with different voting rights preferred shares are widelyused in those countries. Third, dividends on preferred shares depends on companyincome and therefore are not fixed in those countries. Therefore, the properties ofsuch preference shares are very close to ones of common stocks apart from the rightto vote. In other words, such preference shares should be treated as common stockswithout voting rights.
Preference shares without voting rights but with dividend3privileges are very special in dual-class share structures classification1. Quantitativeresearch devoted to the estimation of the factors affecting the price differencebetween share classes plays a significant role in the research field in recent years.Brief literature review. The protection of minority shareholders depends onthe efficiency of corporate governance [La Porta et al., 2000]. The control premiumarises due to the lack of protection of minority shareholder rights.
The theoreticalmodel implies that voting premium depends on the size of private benefits of controland control contest probability in a company [Rydqvist 1987; Zingales 1995]. Thelaw protection of minority shareholders is also important. The better minorityshareholders rights are protected by law the higher the price minority shareholdersare willing to pay for a stock of the company [La Porta et al., 2002]. Thus, thelikelihood of expropriation of non-voting minority shareholders depends on the levelof corporate governance in the company, which is affected by the legal environment.The size of the private benefits of control increases at the expense of minorityshareholders if legal mechanisms do not provide an acceptable degree of protectionto minority shareholders [Zingales, 1994; Zingales, 1995].
As it was shown by[Nenova, 2003] the lower the legal protection of minority shareholders, the higherthe private benefits of control, i.e. the spread. The issuance of ADR for a companyshares is a corporate governance quality proxy that is most frequently used inempirical research (see for instance, [Muravyev, 2009; De Souza, Fernandes, 2014]).In contrast more complex corporate governance quality indicator, i.e. corporategovernance index, was used in the Brazilian market only [Silva, Subrahmanyam,2007].Quality of corporate governance is influenced by the type of controllingshareholder. However, the issue regarding the influence of ownership structure onthe control premium also remains open.
For instance, in Brazil [Silva,Subrahmanyam, 2007; De Souza, Fernandes, 2014] have found a significantnegative impact of government participation in a company on the spread, while1As a rule, preference shares have not voting rights, however may vote in some circumstances, for instance whendividend is omitted or not paid in full4[Saito, Silveira, 2010] have not derived the same results. The theory suggests thespread should be higher if a family holds control stake in a company, especially if afamily holds large stake of voting rights since the family is more sensitive tomaintaining control and is also more prone to expropriate minority shareholders asa class [Caprio and Croci, 2008]. [Saito, Silveira, 2010] have obtained empiricalevidence in the Brazilian market of the positive relationship between familyownership of voting rights and spread meanwhile family influence on spread has notyet been tested over the most recent period.The institutional characteristics of the country both determine the controlpremium factors and have an impact on the sign of the relationship.
Considering thatnot all hypotheses can be tested for each country as well as the need to compare theresults across countries, it is necessary to conduct research on each countryseparately in order to properly estimate the influence of the voting premiumdeterminants.Research objects are the non-financial companies of the global financialmarket. A subject of study is the control premium, estimated as a price differencebetween voting common and non-voting preference shares. An objective of theresearch is to quantify the impact of corporate governance aspects on the controlpremium.In order to achieve the main research objective several objectives wereformulated:1)to summarize theoretical findings and empirical results of the modellingdevoted to the following questions: «Why do companies use dual-class structuresand why do they eliminate them?», «What impact does the dual-class share structurehave on a company market value?»;2)to identify the largest preference share markets with non-fixeddividend;3)to identify the institutional background of Brazil, Germany, Russia andSouth Korea preference share markets, that determines the factors affecting thespread in those markets;54)to identify the aspects of corporate governance and the direction of theirinfluence on the control premium estimated through the difference between pricesof common and preferred shares in Brazil, Germany, Russia and South Korea.Theoretical base.
The theoretical base includes the studies of Russian andforeign authors devoted to comparative valuation of shares with differentshareholder rights, as well as to the corporate governance issues in the companieswith complex capital structure («dual-class companies»). Statistical andeconometric methods were used for empirical testing.
Microsoft Excel and Statasoftware were used for calculations.Information base. The data were mainly collected from Datastream andBloomberg professional databases as long as from Brazil, Germany, Russia andSouth Korea exchange websites and from companies’ websites and E-disclosurecorporate information server.Methodology. There are four main approaches used to estimate corporatevoting rights value, the literature review of which was conducted by [Kalay, 2014]:approach based on the comparison of the value of shares before and after controlblock sale, approach based on the increase in lending rate prior to record date forretail investor, approach based on the price difference between value of stock withvoting rights and value of synthetic stock without voting rights and finally, approachbased on the price difference between market value of shares with different votingrights.
In this research determinants of corporate voting rights value are studiedbased on the fourth approach.Control premium is calculated as the price difference between pricesof voting common stock and non-voting preference stock in accordance withmethodology introduced by [Zingales, 1995], while dividend differential is noteliminated but estimated as a control variable:, =_, − _,_,(1)Quarterly close share prices were used in calculation. If trades werenot executed as of the end of a given quarter, close share prices that are most close6to the end of the quarter were used.
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