Earnings and the Value of Voting Rights

It is difficult to discern the control role of earnings simply because voting rights are hard to isolate from cash flows. We overcome this problem by utilizing a new, market-based, and daily measure of the value of shareholder voting rights introduced in Kalay, Karakaş, and Pant (2014). Specifically, we define voting premiumas the price difference between the stock and the non-voting share that is synthesized using the put-call parity relation, expressed as a percentage of the stock price. The key insight of this method is that option prices reflect the cash flows of the underlying stocks, but not the control rights. Unlike previously proposed methods of estimating control value such as using trades of block shareholders or dual-class stocks, our method enables us to estimate the voting premium for a large sample of widely held firms and hence is less subject to concerns of selection biases.