One-Share-One-Vote and Dual-Class Shares in the Laboratory

We test the seminal Grossman and Hart (1988) model on the optimality of the one-share-one-vote share structure against the dual-class share structure in a laboratory experiment. Our result shows qualitative support to their theoretical prediction asserting that the more efficient contender of control (incumbent or raider) is more likely to win the takeover contest under one-share-one-vote than under dual-class shares. It is interesting to note that contenders generally submit tender-offer prices higher than their maximum willingness to pay predicted by theory in all our treatments. However, the price deviation from the fundamental value is smaller under one-share-one-vote than under dual-class shares. Overall, our results show supportive evidence for better allocation and information efficiency of one-share-one-vote and draw attention to some practical issues when the theory is applied to real market settings