Discussion Paper Details

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Title: Loyalty Shares with Tenure Voting - a Coasian bargain? Evidence from the Loi Florange Experiment

Author(s): Marco Becht, Yuliya Kamisarenka and Anete Pajuste

Publication Date: April 2018

Keyword(s): Coase theorem, dual-class shares, Loyalty shares, one-share-one-vote, tenure voting and time-phased voting

Programme Area(s): Financial Economics

Abstract: French listed companies can issue shares that confer two votes per share after a holding period of at least two years (loyalty shares with tenure voting rights). In 2014 the default rule changed from one-share-one-vote to loyalty shares. The Coase theorem predicts that ceteris paribus shareholders rewrite the corporate charter to preserve the pre-reform structure. The theorem also predicts that the proportion of loyalty shares in initial public offerings is unchanged. The paper shows that most one-share-one-vote companies reverted to the pre-reform contract. The exception were firms with a stake held by the French state. In initial public offerings, the new default rule had an impact; the proportion of loyalty share statutes increased from about forty to fifty percent after the passage of the law. Companies that kept the same statutes have a significantly higher market to book ratio than companies forced into a different regime. The evidence is broadly consistent with the predictions of the Coase theorem, but only in the absence of conflicted parties with veto power.

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Bibliographic Reference

Becht, M, Kamisarenka, Y and Pajuste, A. 2018. 'Loyalty Shares with Tenure Voting - a Coasian bargain? Evidence from the Loi Florange Experiment'. London, Centre for Economic Policy Research.