Dividend privileges and the value of voting rights: Evidence from Italy

• We propose a new measure of the voting right that incorporates dividend privileges.
• We test it against the Relative Price Difference and the Nenova measure on Italian data.
• Standard measures greatly underestimate the actual value of voting rights.
• Our measure should improve cross-country comparisons.

The present paper proposes a new measure of the voting right, the Relative Vote Segment, which incorporates dividend privileges into the inferior class of shares. We test and compare it against the standard Relative Price Difference and the Nenova (2003) measure using 1998–2008 data from Italy, a country where dividend privileges are relevant. Results show that when dividend privileges are considered, the average voting right equals + 35.63%, while its estimated value corresponds to a significantly lower + 20.35% and + 1.29% with the Relative Price Difference and the Nenova (2003) measure, respectively. Negative values of voting rights drop significantly with our methodology. Results become even more clear-cut when we clean the sample of possible measurement errors. As far as the determinants of the voting premium are concerned, the choice of the measure does not appear to have a significant impact, as long as the dividend differences are controlled for.