A change in the index selection rules of Deutsche Börse provides a unique opportunity to investigate the drivers behind the decision to abolish dual-class shares. As of June 2002, selection is based on the market capitalization of the free-float of the more liquid share class rather than the overall market capitalization. As a result, firms have had to reassess the benefits from their dual-class shares in the light of the costs from dropping out of their index. Our findings suggest that index membership significantly affects the controlling shareholder’s motivation to unify preferred and common stock
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