A theoretical analysis of the liquidity risk premium embedded in the prices of voting and non-voting stocks |
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| Institution: | 1. Department of Economics, University of Geneva, Uni-Mail, 1221 Geneva 4, Switzerland;2. Ecole des HEC, BSH1, University of Lausanne, 1015 Lausanne, Switzerland;1. Department of Economics and Finance, University of New Orleans, LA, USA;2. College of Business Administration, Nicholls State University, LA, USA;1. Lincoln International Business School, University of Lincoln, UK;2. Department of International and European Studies, University of Macedonia, Greece;3. Department of Business Administration, University of Patras, Greece |
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| Abstract: | Liquidity risk and corporate control considerations affect shareholders' willingness to invest in stocks and should thus be reflected in their prices. This paper derives the premium required by liquidity risk-averse agents who invest, respectively in non-voting and voting shares. It is shown that the liquidity risk premium depends upon the investor's risk aversion, the variance of his future consumption flow and the liquidation probability of each share type. Furthermore, liquidity risk premia depend upon the firm's capital structure decisions, the distribution and private valuation of voting rights by its shareholders. |
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