Valuation of Voting Scheme Changes

Abstract

This paper studies the effects of the change of voting scheme on the market prices of Electrolux and SKF AB using standard event study methodology and a clinical approach. The economic effect of the voting scheme change is assessed using the market model. We investigate the loss of control due to the change of the voting scheme. The degree of the change of power is calculated using Shapley power index (SPI) and Banzhaf power index. There is a wealth transfer from the high vote shareholders to low vote shareholders in the process since in both cases the high power shareholders required no compensation. We expect that share price to have a positive response to such an announcement due to the reduced power discount and corporate governance improvement. The magnitude of the response on the event day depends also on the information structure of the period leading to the announcement. A bigger effect on the value of the firm is to be expected if the voting powers of the major owner(s) shifts away from absolute control to moderate control which indicating a significant change in governance pattern.