Wealth Transfers in Dual Class Recapitalisations with the Rights Method: the Case of the Italian Stock Market

Firms which exhibit a dual or multiple class of shares structure are listed in the stock markets of numerous countries. Shares with superior voting rights usually sell at a premium. If a firm with at least two categories of outstanding shares issues new shares with the rights method, a wealth transfer among the various categories of shareholders may arise. This paper presents a model which describes the wealth transfer mechanism as well as some empirical evidence drawn from the Italian stock market. In some cases the recapitalisation operations favour non voting shareholders who are not in control. Some considerations which try to explain why such occurrence may arise are also advanced.