The Modelling of the Shareholders Voting Rights Value Using Derivatives

Abstract

The paper presents methods of quantifying corporate voting rights value and provides empirical findings for new approach based on derivatives in the Russian stock market. Using dynamic estimate of corporate voting right it is possible to track the influence of corporate events on the value of the right to participate in a shareholder meeting and to vote on agenda items. In the literature the value of corporate voting rights is estimated based on classical approaches, for instance the approach based on the comparison of the value of shares with different voting rights, and the approach based on the changes in the credit lending rates to borrow a stock close to the record date. Each method mentioned above has its own advantages and limitations we need to consider while developing scientific methodology for a research in emerging capital markets. It is also required to take into account limitations of the estimation methods (i.e. absence of dual-class companies). As a result of empirical investigation of new approach in Russian stock market increasing relation between voting right value and time to expiration of derivative contract was observed. It was also shown statistically insignificant voting rights value before, as of and after the annual shareholder meeting ex-day in 21 days event window due to lack of significant corporate actions with valuable right to vote while such a meeting. Both conclusions are in line with ones derived in US stock market.

Keywords

• voting right
• control
• synthetic stock
• put-call parity
• futures