Market Efficiency in the Valuation of Corporate Control: Evidence from Dual Class Equity

The existence of two classes of equity differing principally in their voting rights allows tests of hypotheses of corporate governance and security valuation. A legal case involving the voting and non-voting shares of Canadian Tire affected the relative prices of dual class equity for other firms listed on the Toronto Stock Exchange. Some price changes are consistent with the theory advanced by Levy (1983) that price differences are related to expected takeover premiums. Other observation are difficult to reconcile with the efficient markets hypothesis. The evidence is consistent with the market requiring a significant time period to assess and incorporate into prices the information contained in a series of complex events.