Corporate governance rules and the value of control - a study of German dual-class shares

The paper uses a dataset of German dual-class shares during 1988-1997 to study the relationship between corporate governance rules and the price differential between voting and non-voting stock. In a first step the paper discusses how mechanisms to separate control from cash-flow rights relate to the value of control. Secondly the paper studies the impact of a new takeover regulation which was adopted in Germany in 1995 and introduced the mandatory bid rule. The paper analyses how minority voting an non-voting shareholders participate in transfers of corporate control under the alternative regulatory structures pre- and post 1995. It is further shown that a mandatory bid requirement reduces the potential control value of voting stock by restricting the ration of control to cash-flow rights.