Journal article

Flights-to-control: Time variation in the value of a vote

P Docherty, S Easton, S Pinder

Journal of Corporate Finance | Elsevier | Published : 2021


Dual-class shares often violate the ‘one share-one vote’ principle, thereby creating the potential for agency problems. We develop a model of time-variation in the pricing of these agency problems, as reflected by the voting premium. A key implication of this model is that insiders face a trade-off between the private benefits of control and the value of their cash-flow claims on the firm, resulting in a negative relationship between the voting premium and the expected present value of firm cash flows. As predicted by this model, we report empirical evidence consistent with ‘flights-to-control’, where the voting premium increases substantially during financial crises and when negative earnin..

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University of Melbourne Researchers