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Do Voting Rights Affect Institutional Investment Decisions? Evidence from Dual-Class Firms


  • We thank Andrew Metrick and Joy Ishii for sharing their dual-class data set. We thank Bill Christie (the editor), an anonymous referee, Xia Chen, Qiang Cheng, Marcin Kacperczyk, Michael King, Karthik Krishnanm, and particpants at the Northern Finance Association (NFA) Meeting in 2007 for comments and helpful suggestions. Priscille Aeschlimann, Huasheng Gao, Dermot Murphy, Dave Newton, and Bing Yu provided excellent research assistance. At the 2007 NFA Meetings, this paper was the winner of the Best Paper Award in valuation sponsored by the Canadian Institute of Chartered Business Valuators. We gratefully acknowledge the financial support from the Social Sciences and Humanities Research Council of Canada, the Bureau of Asset Management of the Sauder School of Business, and the Certified Management Accounting Society of British Columbia. All errors are ours.


We examine whether, and to what extent, shareholder voting rights affect institutional investment decisions. We find that institutional ownership in dual-class firms is significantly lower than it is in single-class firms after controlling for other determinants of institutional investment. Although institutions of all types hold fewer shares of dual-class firms, this avoidance is more pronounced for long-term investors with strong fiduciary responsibilities than for short-term investors with weak fiduciary duties. Following the unification of dual-class shares into a single class, institutional investors increase their shareholdings in the unifying firm. Overall, our results suggest that voting rights are an important determinant of institutional investment decisions.