6.3. Differences between the Parent Companies’ ExpendituresAnother potential explanation for the price disparities is that parent com-
pany expenses differ. If expenses deviated substantially from the 60:40
ratio, then the net receipts of shareholders would deviate as well. However,
expense deviations from 60:40 are far too small to explain our findings.
Differential expenses for 1993, for example, impact each share by approxi-
mately 6 basis points. A generous capitalization of these expense differentials
would yield share price differentials of only about 1 percent.
6.4. Voting RightsDifferences in corporate control might explain price disparities. Royal
Dutch has a 60 percent share in both cash flows as well as voting power, so
it could use this power to damage Shell shareholders interests.^21 Fluctuations
STOCKS AFFECTED BY LOCATION OF TRADE? 123
Figure 3.4. Cumulative present value of dividends on Royal Dutch shares relative to
those of Shell. Note: This figure shows, on a present value basis, the cumulative div-
idends for Royal Dutch relative to Shell as a percentage of the average stock price.
Dividends of Royal Dutch are converted into a common currency and cumulated
using short-term interest rates.
(^21) The internal control of the companies is set up as follows. Each parent has its own indepen-
dent management. The members of the Board of Managers of Royal Dutch and the Managing
Directors of Shell are also Group Managing Directors. They maintain positions on the boards of
the three Group Holding Companies. The ratio of members on this Group Board is 60:40.