the value of corporate voting rights and control a cross country analysis this paper measures the value of corporate voting rights specifically of the control block of votes in a sample of 661 dual class firms in 18 countries in 1997 a consistent measure across countries is proposed the measure is adjusted for takeover probability block holding costs and dividend and liquidity differences between the share classes the value of controlblock votes varies widely across countries it is close to half of firm market value in south korea andclose to zero in finland the value of control block votes is interpretedas a lower bound for actual private benefits of the controlling shareholder the legal environment law enforcement investor protection takeover regulations andpower concentrating corporate charter provisions explain 68 of the cross country variation in the value of control block votes

finding a maximum skewness portfolio a general solution to three moments portfolio choice considering the three first moments and allowing short sales the efficient portfolios set for n risky assets and a riskless one is found supposing that agents like odd moments and dislike even ones analytical formulas for the solution surface are obtained and important geometric properties provide insights on its shape in the three dimensional space defined by the moments a special duality result is needed and proved the methodology is general comprising situations in which for instance the investor trades a negative skewness for a higher expected return computation of the optimum portfolio weights is feasible in most cases

political business cycles 40 years after nordhaus the aim of this article is to survey the huge literature that has emerged in the last four decades following nordhaus s rev econ stud 42 2 169 190 1975 publication on political business cycles pbcs i first propose some developments in history of thought to examine the context in which this ground breaking contribution saw the light of the day i also present a simplified version of nordhaus s model to highlight his key results i detail some early critiques of this model and the fields of investigations to which they gave birth i then focus on the institutional context and examine its influence on pbcs the actual research agenda finally i derive some paths for future research

portfolio performance evaluation in a mean variance skewness framework abstract astronomical amounts of money are being invested in financial markets consequently the evaluation of portfolio performance has created a great deal of interest among practitioners as well as academic researchers the literature suggests that portfolio efficiency based on mean variance skewness is more desirable than the one based on mean variance however there are no well established procedures to measure efficiency in this framework mainly due to the computational difficulties the aim of this paper is to develop a portfolio performance measure based on mean variance skewness framework by utilizing a non parametric efficiency analysis tool namely data envelopment analysis

foreign equity investment restrictions capital flight and shareholder wealth maximization theory and evidence this article provides a theory of foreign equity investment restrictions we consider a model where the demand function for domestic shares differs between domestic and foreign investors because of deadweight costs in holding domestic and foreign securities that depend on the country of residence of investors we show that domestic entrepreneurs maximize firm value by discriminating between domestic and foreign investors the model implies that countries benefitting from capital flight have binding ownership restrictions such that foreign investors pay a higher price for shares than domestic investors the empirical implications of this theory are supported by evidence from switzerland article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

political business cycles and macroeconomic credibility a survey there is clear evidence that government popularity and election performance is affected in part by economic performance suggesting that governments may manipulate the economy to political advantage simple models incorporating adaptive expectations which allowed the government to exploit this relationship were developed in the 1970s but fell out of fashion with the advent of new classical economics however modern theories of the political business cycle which are closely related to the macroeconomic policy game literature assume rational expectations and lead to forms of political business cycle driven by the existence of uncertainty of one type or another the international evidence suggests that some aspects of the theories apply although definitive conclusions are as we might expect hard to come by

the keynesian and political determinants of unbalanced budgets u s fiscal policy from eisenhower to reagan the political business cycle proposition that politicians manipulate fiscal policy for political advantage is largely untested more often than not such manipulation is only assumed to occur on the basis of observed movements in inflation and unemployment and the few direct tests of the manipulation hypothesis are characterized by limited consideration of the full possibilities for political influence inadequate control for nonpolitical stabilization policy and inconsistent results this paper constructs several models of political fiscal policy incorporates them into a simple model of keynesian stabilization policy and tests the combined models using u s budget surplus deficit data from fy54 to fy83 the results provide little support for either the electoral motivation or partisan differences interpretations of the political business cycle the implications of these findings for the political business cycle literature long term economic management and deficit directed proposals for institutional reform are discussed

the determinants of the voting premium in italy the evidence from 1974 to 2003 abstract we examine the voting premium in italy in the period 1974 to 2003 when it ranged from 1 to 100 at firm level the measure of the price differential between voting and non voting stocks cannot be fully explained without taking into account the effect of the largest shareholder s identity family controlled firms have higher voting premiums especially when the family owns a large stake in the company s voting equity and the founder is the firm s ceo and or chairman we explain this result by showing that families attach greater importance to control and are more prone than other types of controlling shareholders to expropriate the non voting class of shareholders

the value of voting rights to majority shareholders evidence from dual class stock unifications we study 84 dual class stock unifications where superior vote shareholders gave up their superior voting status all firm stocks became one share one vote and received in most cases compensation in the form of additional shares unifications are essentially intrafirm transactions of voting rights and afford observation of the intrafirm assessed price of vote the price of vote in unifications 1 increases with the percentage vote lost by the majority shareholders 2 is higher in family controlled firms 3 decreases with institutional investor holdings and 4 is similar to the outside price of vote implicit in the market prices of stocks the value of voting rights is an intriguing topic that has attracted extensive academic and practitioner interest before most of the existing evidence comes from examinations of dual class stocks in the dual class stock system the firm issues two classes of common stock superior and inferior vote stocks previous research documents a price premium of superior vote over inferior vote stocks which illustrates the positive value of voting rights 1 inrecent years manydual classfirmsdecidedtorecapitalizetheirequity into single class stocks this was done by transforming all common stock classesinto oneshareonevote the unification ofstockclassestrendis evidenced in canada amoako adu and smith 2001 and is gaining momentum in europe as well nokia and lufthanza are recent examples we examine 84 dual class share unifications on the tel aviv stock exchange unifications are essentially sales of voting power from one class of investorstoanother bymonitoringtheprices ofthesetransactions thatis by examining the compensation paid for the loss of the superior vote status we hope to provide relatively direct inferences on the value of vote

dual class shares a review the majority of firms traded in the world s three largest stock exchanges london new york and tokyo follow the one share one vote principle however in other countries dual classes of shares are common place for example 50 percent of the publicly traded dutch firms have non voting equity and approximately 75 percent of the publicly traded danish finnish and swedish firms have shares that differ in their voting rights this paper reviews the arguments as to why firms create dual classes of shares their effect on firm value and the relative prices of shares that differ only in their voting rights copyright 1992 by oxford university press

on the theory of optimal government behaviour abstract a small politico economic model of the u s is presented optimal policies for a vote maximising government and an ideology maximising government are derived different assumptions concerning the expectation formation mechanism and the discount rates of voters and government are employed though the structure of the cycle depends on the specific assumptions it turns out that in most cases it is advantageous for the government to produce a political business cycle therefore it is asked how voters can force government to choose the socially optimal policy

frontier based vs traditional mutual fund ratings a first backtesting analysis we explore the potential benefits of a series of existing and new non parametric convex and non convex frontier based fund rating models to summarize the information contained in the moments of the mutual fund price series limiting ourselves to the traditional mean variance portfolio setting we test in a simple backtesting setup whether these efficiency measures fare any better than more traditional financial performance measures in selecting promising investment opportunities the evidence points to a remarkable superior performance of these frontier models compared to most but not all traditional financial performance measures

relative prices of dual class shares empirical studies of dual class shares indicate that superior voting shares svs sell at a premium relative to their counterpart restricted shares rvs this paper uses toronto stock exchange data to show that svs price premium over rvs reflects the expected takeover premium paid to shareholders outside the control block thus marginal shareholders pay a higher svs price in anticipation of receiving a differential takeover bid as suggested by the extra merger hypothesis further analysis indicates that voting power increases the price premium while ownership size and the higher trading liquidity of rvs are inversely related to the premium

economic evaluation of voting power of common stock this paper presents an economic evaluation of common stock voting rights an index of relative voting rights inequality for different classes of stock of the same corporation is constructed and the empirical relationship between the market premium on a superiorvoting stock and the voting inequality index is examined in only three out of the 25 cases could investors have arbitraged between the two classes of stock although in one case the arbitrage opportunity persisted for several months ownership and control of large corporations are two separate functions each shareholder typically holds a relatively small number of shares and hence lacks significant voting power as a result shareholders interest in the management of the firm is typically limited and a majority of them do not participate in the corporation s general meetings 1 thus the investment and financial decisions of the firm are made by a small group the management which effectively controls the firm the possible conflict of interest between these two groups and other various aspects of the separation of control and ownership are the subject of several studies 2 grossman and hart 5 show that even if the directors of the firm do not act in the best interest of the shareholders 3 it may be impossible for them to be disciplined and replaced by a takeover bid this raises the issue of whether theright to control the firm s activities has any economic value to focus the issue suppose a firm issues two classes of stock one with voting rights and the other with no voting rights and assume further that the two classes are entitled to the same pecuniary payoff in every state of the world according to traditional financial theory that asserts that two assets promising the same payoff in every state of nature must sell for the same price the voting rights would be worthless and we should expect the same market price for the two classes of stock however

is the political business cycle really dead a decade ago in this journal mccallum 26 proclaimed the theory of the political business cycle 30 25 17 to be dominated by the emergence of the rational expectations literature 23 24 34 clearly the two theories are inconsistent when a strong view of rational expectations sees governments unable to manipulate real variables to create booms in election years since then new developments in macroeconomics have occasioned serious doubts as to whether the strong version of rational expectations is supported by the data 28 2 1 31 12 furthermore new advances in the political business cycle literature 36 4 have attempted to reconciliate the two theories by emphasizing that expectation errors may result from the presence of party dependent policy reaction functions and uncertainty about election outcomes the purpose of this paper is to step back and reconsider whether or not the empirical evidence presented by mccallum favoring rational expectations for the u s was really that strong and could be generalized to other countries here the u k given that the rational expectations hypothesis has been rejected at least in the strong mccallum and sargent version 26 34 it

on corporate governance a study of proxy contests abstract this paper examines a sample of firms experiencing proxy contests for seats on their board of directors dissident shareholders usually fail to obtain a majority of board seats nevertheless they capture some seats via mechanisms such as cumulative voting in over half of the sample contests regardless of proxy contest outcome positive and statistically significant share price performance is associated with the contest that finding is predicted by the standard economic analysis of proxy contests in which the challenges benefit shareholders by improving corporate performance the finding runs counter to the claim of berle 1962 that the economists view of proxy contests is a wholly imaginary picture a portion of the positive share price changes taking place in the early stages of some proxy contests is not permanent however and as suggested by manne 1962 is at least partially attributable to temporary increases in the market value of the vote attached to corporate shares

takeover bids and the relative prices of shares that differ in their voting rights the relative prices of shares that differ only in their voting rights are modelled in our model voting rights become valuable when a control contest is decided through takeover bids for outside votes the study shows how the value of the voting right depends on the initial ownership distribution the share structure and the ability of the incumbent manager versus a rival for control empirical support for the model is provided using swedish stock market data

managerial ownership of voting rights abstract managers of firms with dual classes of common stock can choose different quantities of votes for a given cash flow interest by choosing different quantities of the two securities we study managerial stock holdings in 45 dual class firms and find that vote ownership per se is an important motivation for these holdings in that corporate officers and their families hold a median 56 9 of the votes and 24 0 of the common stock cash flows we also find significant family involvement in many sample firms and document four case studies in which explicit acquisition premiums were paid for superior voting shares

rationality and the political business cycle the case of local government the empirical results which have been reported support the hypotheses implied by the model of rational political behavior set out in section 2 in pre election periods local government development expenditures deviate significantly from their normal levels the extent of deviation is approximately 20

the value of the corporate voting right evidence from switzerland abstract this paper analyzes the value of voting power of swiss firms which usually issue high voting rights stock low voting rights stock and non voting stock two variables measuring voting power inequality are constructed they are both useful in explaining the voting rights premia also the allocation of the voting rights is analyzed it is shown that majority shareholders hold the high voting rights stock

skewness persistence with optimal portfolio selection abstract existing studies have found that ex post stock returns are positively skewed but such skewness is only persistent for individual stocks not for portfolios this implies that the ex post knowledge of skewness may not be useful in ex ante portfolio selection however the portfolios in these studies are not optimally formed because preferences for skewness are not taken into consideration when forming these portfolios it is more meaningful to see if the positive skewness would persist in optimally formed mean variance skewness efficient portfolios using stocks from both japanese and us markets and a bootstrap method we find that the portfolios optimally formed by using a polynomial goal programming method which considers preference for skewness greatly enhances skewness persistence over time our results are robust across both japanese and us stocks however the skewness persistence is stronger for portfolios formed with monthly data than that with weekly data these findings have practical implications to investors with skewness preferences

foundations of portfolio theory prize lecture to the memory of alfred nobel december 7 1990 this abstract was borrowed from another version of this item

mean variance skewness portfolio performance gauging a general shortage function and dual approach this paper proposes a nonparametric efficiency measurement approach for the static portfolio selection problem in mean variance skewness space a shortage function is defined that looks for possible increases in return and skewness and decreases in variance global optimality is guaranteed for the resulting optimal portfolios we also establish a link to a proper indirect mean variance skewness utility function for computational reasons the optimal portfolios resulting from this dual approach are only locally optimal this framework permits to differentiate between portfolio efficiency and allocative efficiency and a convexity efficiency component related to the difference between the primal nonconvex approach and the dual convex approach furthermore in principle information can be retrieved about the revealed risk aversion and prudence of investors an empirical section on a small sample of assets serves as an illustration

price differences between equity classes corporate control foreign ownership or liquidity abstract this paper is the first comprehensive study of price differences for dual class equity at the oslo stock exchange it analyzes the relative importance of corporate control foreign ownership restrictions and stock market liquidity for the price differences the norwegian market has the peculiar feature that in part of the sample period non voting shares were trading at a premium to voting shares i e what is usually termed the voting premium was negative this result can be rationalized by restrictions on foreign ownership in the later part of the period with no regulatory restrictions on foreign ownership the voting premium is positive and related to corporate governance and liquidity

the value of the voting right a study of the milan stock exchange experience i study the large premium 82 percent attributed to voting shares on the milan stock exchange the premium varies according to the ownership structare and the concentration of the voting rights and it can be rationalized in the presence of enormous private benefits of control a case study seems to indicate that in italy private benefits of control can easily be worth more than 60 percent of the value of nonvoting equity a tentative explanation for these findings is provided traditional finance theory disregards the value of voting rights in pricing common stock in most cases this omission does not seem harmful many studies of differential voting stocks in different countries have indicated that voting rights are generally worth between 10 percent and 20 percent of the value of common stock the italian evidence i present differs sharply from this view in italy voting shares that have inferior dividend rights trade at an average premium

skewness preference and portfolio choice one of the virtues of parameter preference models presented in general form in rubinstein 23 is their empirical content applied models of financial theory rely heavily on the mean variance mv version of parameter preference as spelled out in samuelson 25 mv models are adequate with compact distributions of returns and when portfolio decisions are made frequently so that the risk parameter becomes sufficiently small

the market value of corporate votes theory and evidence from option prices this paper proposes a new method using option prices to estimate the market value of the shareholder voting rights associated with a stock the method consists of synthesizing a nonvoting share using put call parity and comparing its price to that of the underlying stock empirically we find this measure of the value of voting rights to be positive and increasing in the time to expiration of synthetic stocks the measure also increases around special shareholder meetings periods of hedge fund activism and m a events the method is likely useful in studies of corporate control and also has asset pricing implications

what determines the value of corporate votes this paper studies the determinants of the value of voting rights in u s corporations results support the hypothesis that the price of a vote is determined by the expected additional payment vote holders will receive for their votes in case of a control contest the size of this differential payment is a function of the probability that a vote is pivotal in a control contest and the magnitude of the private benefits obtainable by controlling the company simple proxies for these two factors explain up to 30 percent of the variation of the voting premium across companies and through time my findings also suggest that the value of managerial perquisites are at least partially reflected in the price of votes

non parametric estimation of decision makers risk aversion abstract a new non parametric method to estimate a decision maker s coefficient of absolute risk aversion from observed economic behaviour is explained the method uses the expected value variance e v framework and quadratic programming an empirical illustration is given using norwegian farm level data

dea frontier improvement and portfolio rebalancing an application of china mutual funds on considering sustainability information disclosure abstract data envelopment analysis dea has been a widely used methodology for evaluating the relative performance of portfolios extensive work has appeared for realizing the role of dea in the aspect of assessing portfolio performance and deriving the relative rankings however the role of providing realizable benchmarks is not fully explored in the existing literatures most importantly the dea based portfolio performance evaluation methods developed in the existing literatures can hardly provide support for fund managers in pursuing sustainability performance in this paper we first propose a dea frontier improvement approach under the mean variance framework this approach provides investor with a rebalancing strategy as well as an improved dea frontier which approximates the portfolio efficient frontier better than the traditional dea model does then this approach is extended to a general return risk framework our in sample simulation results verify the effectiveness of the proposed approach for a wide range of applications in addition the out of sample tests show that the rebalancing investment strategies can achieve higher sharpe ratios and sortino ratios than those of the original ones finally we apply the proposed approach to evaluate mutual fund performance in china with the consideration of sustainability information disclosure we construct a disclosure index to indicate the extent of sustainable information disclosure of each mutual fund the results show that the proposed approach provides not only investment recommendations but also references for constructing sustainable green funds

ownership of equity in dual class firms abstract the paper investigates the hypothesis that large shareholders use shares with differential voting rights for the purpose of expropriating minority shareholders consistent with several theoretical arguments but inconsistent with the expropriation hypothesis we find that large shareholders own much more equity than required for control we also show how the law can construct a regulation which reduces the opportunity for expropriation and at the same time allows for the possible benefits of differential voting rights

testing for prudence and skewness seeking numerous theoretical predictions such as precautionary saving or preventive behavior have been derived for prudent decision makers further prudence can be characterized as downside risk aversion and plays a key role in preference for skewness we use a simple experimental method to test for prudence and skewness preference in the laboratory and compare the two to this end we introduce a novel graphical representation of compound lotteries that is easily accessible to subjects and test it for robustness using a factorial design prudence is observed on the aggregate and individual level we find that prudence does not boil down to skewness seeking we further provide some theoretical explanations for this result this paper was accepted by peter wakker decision analysis

differentiated bids for voting and restricted voting shares in public tender offers abstract this paper develops a model for takeover bid premiums of voting and restricted voting shares when the bidder wants 100 of the target firm for this special case a higher bid premium may be offered either to the voting or to the restricted voting shareholders we also analyze consequences of the equal offer and one share one vote principles and investigate the model s explanatory power on swedish data

portfolio selection and skewness evidence from international stock markets abstract this paper finds that the returns of the world s 14 major stock markets are not normally distributed and that the correlation matrix of these stock markets was stable during the january 1988 december 1993 time period polynomial goal programming in which investor preferences for skewness can be incorporated is utilized to determine the optimal portfolio consisting of the choices of 14 international stock indexes the empirical findings suggest that the incorporation of skewness into an investor s portfolio decision causes a major change in the construction of the optimal portfolio the evidence also indicate that investors trade expected return of the portfolio for skewness

unintended consequences of the market risk requirement in banking regulation abstract we analyze a bank that operates under the basel credit and market risk requirements and that maximizes its value through recapitalizations dividends and liquid asset investments according to our model the market risk requirement may postpone recapitalization and this way increase the bank s default probability we show that this is indeed the case if the expected return and volatility of the liquid asset portfolio are high i e then the market risk requirement raises the default probability of the bank in this sense the market risk requirement is inefficient

random timing of elections and the political business cycle in his 1975 paper nordhaus formally proves that governments whose aim is to be reelected will generate political business cycles empirical results do not confirm this proposition especially in countries used to early elections

precautionary saving in the small and in the large the theory of precautionary saving is shown to be isomorphic to the arrow pratt theory of risk aversion making possible the application of a large body of knowledge about risk aversion to precautionary saving and more generally to the theory of optimal choice under risk in particular a measure of the strength of the precautionary saving motive analogous to the arrow pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving and to give a new interpretation of the dreze modigliani substitution effect copyright 1990 by the econometric society

geometric representation of the mean variance skewness portfolio frontier based upon the shortage function the literature suggests that investors prefer portfolios based on mean variance and skewness rather than portfolios based on mean variance mv criteria solely furthermore a small variety of methods have been proposed to determine meanvariance skewness mvs optimal portfolios recently the shortage function has been introduced as a measure of e ciency allowing to characterize mvs optimal portfolios using non parametric mathematical programming tools while tracing the mv portfolio frontier has become trivial the geometric representation of the mvs frontier is an open challenge a hitherto unnoticed advantage of the shortage function is that it allows to geometrically represent the mvs portfolio frontier the purpose of this contribution is to systematically develop geometric representations of the mvs portfolio frontier using the shortage function and related approaches

selecting a portfolio with skewness recent evidence from us european and latin american equity markets abstract polynomial goal programming in which investor preferences for skewness can be incorporated is utilized to determine the optimal portfolio from latin american us and european capital markets the empirical findings suggest that the incorporation of skewness into an investor s portfolio decision causes a major change in the resultant optimal portfolio the empirical evidence indicates that investors do trade expected return of the portfolio for skewness