Indian investors pay a decent premium to buy shares with higher voting rights but rarely exercise their vote, a study by advisory firm Stakeholders Empowerment Services (SES) shows.
The analysis is based on the price difference between ordinary shares and those with differential voting rights (DVR) of Tata Motors, Pantaloon Retail and Jain Irrigation. Despite higher dividends, DVR shares of these companies trade at a discount to the ordinary ones, indicating the market is paying a premium for higher voting rights.
“If there is zero value in voting, then the markets are not pricing the securities correctly and, therefore, there is huge upside in the DVRs,” say SES analysts Amarendra Singh and Arjun Gupta, who have co-authored the report titled “Is There Value in Voting?”
“But this unrealised upside has been there for long and shareholders have not exploited it, which means the markets are valuing their voting rights correctly and paying a premium for the same,” they add.
A further analysis of price attributable to dividends and voting rights shows shareholders give almost equal importance for these two. For instance, the DVR of Tata Motors have additional five per cent dividend but only a 10th of voting rights when compared to ordinary shares.
Comparisons of DVRs and ordinary shares of Tata Motors and other companies, after factoring this aspect, show shareholders value dividend rights almost at par with voting rights, the study shows.
According to experts, lack of awareness, especially of small shareholders, and inadequate information from the company’s management could be the reason for investors’ passive approach to voting. However, as the focus on corporate governance increases, investors will start voicing concerns and enforce their rights actively, they added.
The new Companies Bill put in place several measures to increase participation of minority shareholders, especially institutional investors, in important company affairs.
The Securities and Exchange Board of India (Sebi), too, recently asked listed companies to disclose the voting patterns to stock exchanges. It has asked asset management companies to disclose their voting policies and their exercise of voting rights on their web-sites and in annual reports.
“Institutional investors should seek to vote on all shares held. They should not automatically support the board. If they have been unable to reach a satisfactory outcome through active dialogue, then they should register an abstention or vote against the resolution,” said Sebi in a consultive paper released last week.