Posted by Umit Gurun, University of Texas at Dallas, and Oğuzhan Karakaş, Boston College, on Monday, October 3, 2016
Editor's Note: Umit Gurun is Professor of Accounting and Finance at the University of Texas at Dallas Naveen Jindal School of Management, and Oğuzhan Karakaş is Assistant Professor of Finance at Boston College Carroll School of Management. This post is based on their recent paper.
In our recent paper, Earnings and the Value of Voting Rights, we examine the impact of earnings announcements on the value of shareholder voting rights (i.e., voting premium). Earnings are associated with and indicative of the efficiency in the management of the company. We contend that earnings not only inform investors regarding the risky stream of cash flows (ownership role), but also influence the control rights by providing a benchmark for shareholders to express their concerns with corporate performance and to pressure management for corporate reform (control role). This dual role of earnings naturally maps into the separation of ownership and control functions in modern corporations.