The Effect of Tenure-Based Voting Rights on Stock Market Attractiveness: Evidence from the Florange Act
We examine the capital market consequences of a regulatory intervention aimed at generalizing tenure voting in French public companies. The 2014 Florange Act departs from the ‘one share one vote’ principle by automatically granting double voting rights (DVR) to shares held for at least two years as the default option. However, firms can opt out through an annual meeting vote. Among firms that had not voluntarily adopted DVR prior to Florange, we find that firms adopting and maintaining DVR experience a relative decrease in foreign institutional ownership relative to other firms. In the cross- section, our effect is concentrated among firms with an existing large blockholder. We also document an increase in the cost of capital for firms that maintained DVR. Collectively, the evidence casts doubt on the merit of regulation-induced tenure voting as a desirable corporate governance mechanism. Instead, the results echo critics’ concerns that mandating double voting rights reinforces insiders’ entrenchment rather than value-enhancing long-term orientation.