Encouraging Long-Term Shareholders the Effects of Loyalty Shares with Double Voting Rights

Loyalty shares, mechanisms designed to encourage long-term share ownership through disproportional ownership rights, face questions regarding their benefits and costs. We examine these questions through a natural experiment – the passage of the Florange Act in France – which required firms to adopt loyalty shares unless shareholders opted out. We find differences in market reactions: negative for firms opting out, positive for those newly adopting the shares. Providing comparative evidence across these firms and across the two-thirds of French firms that previously issued loyalty shares, we show how the benefits and costs of loyalty shares vary across firms