The Relevance of Tag along Rights and Identity of Controlling Shareholders for the Price Spreads between Dual-Class Shares: the Brazilian Case
The Relevance of Tag along Rights and Identity of Controlling Shareholders for the Price Spreads between Dual-Class Shares: the Brazilian Case
Autor Correspondente: Richard Saito | [email protected]
Palavras-chave: voting and non-voting shares, dual class premium, private benefits of control, legal rules, mandatory bid rule
Resumos Cadastrados
Resumo Inglês:
This paper analyzes the determinants of the differential pricing of equity classes (the so-called dual-class
premium [DCP]) in Brazil from 1995 to 2006 with a focus on two specific corporate governance aspects: i) the
granting of tag along rights, a mandatory bid rule that extends to minority shareholders the right to sell their
shares in case of a control transfer; and ii) the identity of the controlling shareholders, with an emphasis on
family control. We examined 87 Brazilian listed firms throughout the period, resulting in a sample of 3,287
observations. We found empirical evidence that changes in Corporate Law decreased (increased) the advantage
of voting shares in terms of tag along rights reduced (incremented) DCP. However, we did not find empirical
evidence that the voluntary granting of tag along rights altered DCP. We also found evidence suggesting that
family control is positively associated with DCP level. Overall, our results indicate that regulations regarding
shareholders’ rights and the identity of controlling shareholders are the two relevant corporate governance
variables for DCP level in environments characterized by concentrated ownership structures.
