On the price of different classes of shares

Abstract

Neither the opponents nor the supporters of the efficiency proposition investigate whether stock prices may rationally reflect further elements in addition to future dividends. The experience of several countries, however, shows that market prices of different types of shares may diverge, and sometimes considerably so. Indeed, economic theory does not seem to have devoted sufficient attention to the magnitude and determinants of different valuations. The present paper analyses this issue in two steps. First, a stable situation is considered, where the distribution of shares between “majority” and “minority” shareholders is fixed. Second, and unstable situation where the possibility of changes in the distribution of shares is explicitly considered.  In both cases, two classes of shares are considered, one with full voting rights and another with no voting rights at all.

JEL: G10, G14