DP12892 Loyalty Shares with Tenure Voting - a Coasian bargain? Evidence from the Loi Florange Experiment

Author(s):	Marco Becht, Yuliya Kamisarenka, Anete Pajuste
Publication Date:	April 2018
Keyword(s):	Coase theorem, dual-class shares, Loyalty shares, one-share-one-vote, tenure voting, time-phased voting
JEL(s):	D23, G32, G34, K22
Programme Areas:	Financial Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=12892

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.