The Swedish Voting Premium : Empirical evidence of price spreads in dual-class shares

Abstract: This paper examines the relative price spreads between dual-class shares issued by the same firm on the Swedish market in order to investigate if a voting premium exists and what factors contribute to it. Previous research has found diverging explanations for the variation in price spreads between dual-class shares. Some find explanatory power in the concentration of ownership whilst others find trading costs and liquidity to determine the size and direction of the voting premium. This study tests factors of control and liquidity against the relative price spread in the Swedish market and in accordance with earlier research, the results indicate that a statistically significant voting premium exists in Sweden, although it is relatively small in comparison to many other markets. The paper contributes to the current pool of research by the choice of market, and by adding up-to-date information regarding the voting premium as well as evidence that increased domestic institutional ownership affects the voting premium negatively. At the same time, foreign institutional ownership has an opposite effect and leads to increased price differences between share classes. The general conclusion of this paper is that while some factors related to control and ownership concentration show significance long-term, other unobserved aspects could provide greater explanatory power of the voting premium in the short term.