Research by Prof. Anete Pajuste and Yuliya Kamisarenka (Class of 2017) has been published in the Journal of Law and Economics
Joint research by SSE Riga Professor Anete Pajuste, Yuliya Kamisarenka (Class of 2017), and Professor Marco Becht from the Solvay Brussels School of Economics and Management (SBS-EM) at Université libre de Bruxelles is published in the most recent volume of the Journal of Law and Economics.
The paper, titled "Loyalty Shares with Tenure Voting: Does the Default Rule Matter? Evidence from the Loi Florange Experiment", tests a central prediction of the contractual theory of the firm that predicts that companies adopt charters that maximize firms' value regardless of the default rule.
The authors test this proposition around an exogenous switch of the default from a one-share-one-vote regime to tenure voting following a legal reform in France. In initial public offerings (IPOs), tenure voting is primarily adopted by families, and after the reform its use increased slightly but not significantly. The change in default rule has no significant impact on companies’ characteristics or valuations. For companies that were already listed with one-share-one-vote systems and would have been forced to switch to tenure voting by default, the authors observe a revealed preference for the choice they had made at the IPO; one-share-one-vote companies preserve their pre-reform status, unless the French state has a blocking minority. Overall, the results suggest that once firms have optimized, changing the default rule imposes transaction costs without changing outcomes.