PRICE DIFFERENCES BETWEEN DUAL-CLASS STOCKS: EVIDENCE FROM MEXICO

Recent literature suggests that there may exist a discount on superior voting shares of Mexican firms, which is inconsistent with the private benefits of control. We evaluate the price differences of dual-class stocks with different voting rights for a sample of firms trading in the Mexican stock exchange. We find an average voting premium of 2.25 % for the period between September 1991 and July 2004. We examine the change in the average voting premium over time. A structural break analysis shows a negative voting premium in the period between August 1997 and November 2000. This can be explained by liquidity differences, as we find that on average inferior voting shares are less liquid compared to their superior voting counterparts. Our results indicate that liquidity is an important determinant of relative prices between dual-class stocks in the Mexican market