Abstract

Publicly traded companies sometimes issue different classes of shares. The main benefit of dual class voting structures for shareholders and a company’s management is to focus on long-term goals and a company’s strategic direction while maintaining the freedom, rather than contending with the threat of a hostile takeover. The key difference between voting shares and non-voting shares in dual class structure is the voting right. If control is valuable, the voting shares would trade at a higher price than the non-voting shares. When perusing historical data for past few years in companies that trade both voting and non-voting shares in the Colombo Stock Exchange(CSE), it was observed that the voting premium varies from company to company and within the company itself over the time. The objective of this paper is to quantify the voting premium for CSE shares in order to create symmetric information that would be helpful for investors to know whether the shares are underpriced or overpriced relative to its aggregate performance. After conducting a systematic review of literature, factors affecting voting premium that is described using different models, frames and processes were identified and expert opinion sought to aid verification. Through an initial analysis of historical data using a multiple regression model, a mathematical formula to quantify the voting premium is introduced. The regression show that the N/X ratio, foreign holdings ratio, public float and exchange rate influence the value of voting premium negatively whereas inflation has a positive influence. The formula was verified and the actual voting premiums are between lower and upper bounds of predicted voting premiums.