Block Trading, Ownership Structure, and the Value of Corporate Votes

This paper shows that open market block trading can provide a link between private benefits of control enjoyed by large shareholders and the ?voting premium?, i.e. the price difference between voting and non-voting shares. We first demonstrate in a microstructure model with informed traders and short-selling constraint that the trading activity of blockholders translates into a spread between the prices of voting and non-voting shares. In contrast to the extant theory, this model can explain the voting premium in the absence of corporate takeovers. In the empirical part of the paper, we show for a comprehensive sample of German dual-class companies that large trades occur more often in voting shares than in non-voting shares, and that the block trading activity in voting shares is strongly correlated with the voting premium. Moreover, the effect of the ownership structure on the voting premium becomes insignificant once we control for the block trading activity in voting shares.