Earnings and the Value of Voting Rights

Abstract

Corporate control is integral to capital markets, yet its link to financial reporting remains elusive, partly due to challenges in valuing voting rights. Using a novel option-based methodology, we quantify the voting premium and examine its response to earnings announcements, documenting a significant negative relation with earnings surprises. This effect is amplified by upcoming shareholder meetings, activist involvement, and subpar firm performance, yet mitigated by higher insider ownership. Our findings, not attributable to short-selling constraints or informed trading, indicate earnings announcements affect stock prices via both cash flow and voting rights, offering fresh insights into financial reporting and corporate control.