Differential Voting Right Shares in India - Legal and Valuation Perspective

Wadhwa, Manick and Wadhwa, Ankit (2018): Differential Voting Right Shares in India - Legal and Valuation Perspective.

Abstract

In India, a company can only issue DVR, a.k.a. Differential Voting Rights, shares that offer fewer voting rights than ordinary shares of the same company. The holders of the equity shares with differential rights enjoy all other rights such as bonus shares, rights shares etc., which the holders of ordinary equity shares are entitled to

Ideally, the movement in the two shares, i.e. ordinary share and DVR share, should mirror each other. However in India, on an average, only 63.83% of the returns of DVR shares is explained by returns of the ordinary shares.

The legal environment is the key factor in explaining differences across countries and the voting premium is smaller in countries with better legal protection for minority and non-voting stockholders and larger for countries without such protection.

Considering the strict corporate governance requirements for Companies to list dual-class shares in India and the various laws protecting the rights of DVR shareholders against hostility, it can be argued that the discount of 35-45% for DVR shares is a bit excessive.

• Item Type: MPRA Paper
• Language: English
• Keywords: dual class shares; dvr; india; legal; valuation; voting vs non-voting shares
• Subjects: G - Financial Economics > G1 - General Financial Markets; G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading; K - Law and Economics > K2 - Regulation and Business Law > K22 - Business and Securities Law

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