Multiple Voting Shares and ESG Performance

What is it about?

This paper builds on previous literature on corporate governance and sustainability by studying the relation between the adoption of multiple voting shares (MVS) and environmental, social and governance (ESG) performance. More specifically, it hypothesises that controlled companies with MVS have lower sustainability performance than controlled companies without MVS because of different shareholders incentives. We rely on a proprietary dataset that includes 1,940 firm-year observations from 11 European countries, between 2016 and 2018 and we conduct multivariate analyses. To account for endogeneity and to further strengthen the results, we performed a difference-in-differences (diff-in-diff) analysis. We find that companies controlled by a dominant shareholder through MVS have lower sustainability performance compared to controlled companies without MVS.

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Photo by JESHOOTS.COM on Unsplash

Photo by JESHOOTS.COM on Unsplash

Why is it important?

First, we extend previous studies on the effects of MVS, a corporate governance mechanism that is gaining importance over time. Even if there are some previous studies that indirectly allow drawing some arguments and empirical results (see Mio et al., 2020) about MVS and companies’ long-term orientation, there is not any previous empirical study on the relation between MVS and ESG performance. We fill this gap in the literature. Second, while previous studies assume that MVS controlling shareholders have similar incentives compared to non-MVS controlling shareholders, we do not. Previous literature (Bolton and Samana, 2013; Delvoie and Clottens, 2015; Ryan and Schneider, 2002; Cornett et al., 2007) suggests that MVS benefits companies because it allows them to have a controlling shareholder. Such a shareholder has the incentives and power to monitor management and to push for long-term value creation. Our results show that this is not the case, as the preferences of non-MVS shareholders and of MVS shareholders are inherently different. More specifically, MVS shareholders are more risk prone and invest to a lower extent on sustainability. Third, we offer relevant evidence to investors and policy makers. Investors (especially socially responsible investors) may consider our results when making their investment decisions or when they are called to vote on corporate governance changes. Policy makers may do so when deciding whether to foster this particular corporate governance mechanism.