higherthepremiumonvotingsharesshouldbe.Since
the expected value of control is divided by the
number of voting shares to get the premium, the
smallerthatnumber,thegreaterthevalueattachedto
eachshare. This hasto beweighedoff againstthe
reality that when the number of voting shares is
small, theyare more likely to be held entirely by
incumbentmanagersandinsiders,thusreducingthe
likelihood of management change.- Other things remaining equal, the greater the
percentage of voting shares that are available for
tradingbythegeneralpublic(float),thehigherthe
premium onvotingshares shouldbe. Whenvoting
shares are entirely or predominantly held by
managers and insiders, the probability of control
changing is smalland sois theexpected value of
control. - Anyeventthatillustratesthepowerofvotingshares
relative to nonvotingshares is likely to affect the
premium at which all voting shares trade. The
expectedvalueofcontrolisafunctionofperceptions
thatmanagementatthesefirmscanbechanged.Ina
market where incumbentmanagers are entrenched,
votingshares maynottrade ata premium because
investors assess no value to control. A hostile
acquisition in this market or a regulatory change
providingprotection to nonvotingshareholders can
increase the expected value of control for all
companies and, with it, the voting share premium.
Insummary,then,wewouldexpectthevotingsharepremium
tobehighestinbadlymanagedfirmswherevotingsharesare
dispersed among the public. We would expect it to be