great deal of control over how the firm is run. Although
goldensharesarenottraded, theywillaffect thevaluesof
shares that are traded by reducing the expected value of
control.
Implications
If theprimary reason forthe votingshare premium is the
value of control, there are several conclusions that follow:
- Thedifferencebetweenvotingandnonvotingshares
shouldgotozeroifthereisnochanceofchanging
management/control.This willclearlybea function
of the concentration of ownership of the voting
shares.Iftherearerelativelyfewvotingshares,held
entirelybyinsiders, theprobabilityofmanagement
changemay verywellbe closeto zeroand voting
sharesshould tradeatthesamepriceas nonvoting
shares.If,however,asignificantpercentageofvoting
shares is held by the public, the probability of
managementchangeshouldbehigherandthevoting
shares should reflect this likelihood. - Other things remainingequal,votingshares should
trade at a larger premium on nonvoting shares at
badly managed firms than at well-managed firms.
Sincetheexpectedvalueofcontrolisclosetozeroin
well-managed firms, voting shares and nonvoting
sharesshouldtradeatroughlythesamepriceinthese
firms.Inabadlymanagedfirm,theexpectedvalueof
controlis likely tobe higher,asshould thevoting
share premium. - Otherthingsremainingequal,thesmallerthenumber
of voting shares relative to nonvoting shares, the