What's the advantage of owning stock with voting rights?

May 3, 2004 2:02 PM

What is the advantage of owning stock which has voting rights? These guys (the first 20 posts, specifically comment #17) imply that stock which has voting rights will trade at a premium. Furthermore, this Berkshire memo mentions that there will fluctuation and difference in supply and demand between two types of stock that have a constant valuation ratio despite having differing voting rights.

What is it about voting rights that would add or decrease value to a company's net worth? Most of the links I've checked seem to only confirm that yes, there is a difference.
posted by sleslie to work & money (3 comments total)

Control. It doesn't matter to an individual shareholder, but institutions and anyone else who might stage a takeover want to be able to either direct or influence policy.

In a hypothetical example, imagine owning the majority of a company's shares and having no voting rights. The ninnies who owned the voting shares, despite owning less of the company than you, would get to name directors, set dividend policy, determine the direction of the company, et cetera...
posted by trharlan at 2:11 PM on May 3, 2004

So-called "preferred" stock typically pays higher dividends, but has no associated voting rights. Any differences between the prices for preferred and common stock depend on the conditions of the market. If there are a lot of investors looking at a company as a long-term income generating investment (typical for a blue chip company or a utility), there might be higher demand for the preferred stock, which is capable of delivering more income. On the other hand, if the company is the subject of a takeover bid, the common stock might shoot up, since the takeover depends on the purchase of voting shares. If investors are targeting a company for short-term speculation rather than long-term investment, the preferred stock will be less likely to carry a premium.

What is it about voting rights that would add or decrease value to a company's net worth?

Stock price isn't necessarily very closely related to the company's "net worth". Do you mean the company's market capitalization (the total value of all outstanding shares of stock)?
posted by mr_roboto at 2:25 PM on May 3, 2004

roboto: I don't think the OP was talking about the preferred/common issue, but if so:

Preferreds are priced almost exclusively on the creditworthiness of the issuer and the coupon. A preferred share will never pay a higher coupon than the one printed on its face. A common stock's dividend, in theory, can grow forever.

Also, sleslie, check this out.
posted by Kwantsar at 3:01 PM on May 3, 2004