Theory suggests that reorganizing common shares into shares with different voting rights may reduce the effectiveness of corporate control mechanism, decreasing firm value. Firms argue that creating a class of restricted (non-voting or subordinate voting) equity may enhance firm value by improving liquidity, facilitating Canadian ownership and allowing the maintenance of the existing vote ownership. An event study of fifty-four proposals by Canadian firms to reorganize existing common shares into full voting and restricted classes finds that the reorganizations not associated with a change in dividends generate significantly negative abnormal returns, indicating that the reorganizations reduce firm value.
