Prompted by the proposal of creating a “Long term stock exchange” in Europe, last years have witnessed the increasing adoption of a particular type of disproportional ownership mechanism, called loyalty share. Such tool separates ownership from control and deviates from the one share-one vote rule (the proportionality principle) by providing long-term shareholders with extra voting rights. This is especially true in Italy, where loyalty shares have started to be issued after the adoption of the Law Decree 24/06/2014 n. 91, converted into the Law 116/2014. While research has provided an overview of the markets where such disproportional ownership mechanisms are in place and has explored the changes in firm’s capitalization and control due to their use, less attention has been paid to the effects of loyalty shares on firms’ outcomes. Especially in countries where the investors’ protection is limited, the deviation from the one share-one vote rule and the increased power of blockholders arisen by loyalty shares prompt the opportunistic behavior of majority shareholders and provide incentives to the extraction of private control benefits. Indeed, while the ownership concentration due to such tools hampers the first type agency conflict, it fosters the blockholders’ entrenchment and can prevent the effective allocation of firm’s resources and the adoption of value maximizing managerial decisions. With this in mind, the study intends to investigate the implications of loyalty shares for firm performance and the moderating effect of family ownership on such relationship. To this aim, the paper empirically analyzes a sample of 285 Italian listed companies through ordinary least squares regressions. Findings support the hypotheses formulated and show that, while loyalty shares hamper firm performance, family ownership positively moderates such effect. Thereby, the research fills a gap in the literature that has devoted limited attention to loyalty shares. At the same time, it advances the debate on the implications of separating ownership from control by disproportional ownership mechanisms and sheds light into the role of family ownership and its ability to weaken the agency conflicts arisen by loyalty shares. Finally, it can improve the awareness of practitioners and policy-makers around the importance of encouraging the adoption of ownership solutions able to hinder company expropriation as well as foster long-term ownership, while balancing ownership stability and performance maximization.
KEYWORDS: Loyalty shares, Company performance, Italian firms.
