DVR (Differential Voting Rights) Shares are issued by companies to raise capital without giving much voting rights to shareholders. To make up for lesser voting rights, shareholders of DVR shares are paid a slightly extra premium than normal shares.
Why do Companies issue DVR shares?
This provides a win-win kind of situation for the company as well as its shareholders. The company can raise more capital without the worry of any changes in its voting structures and retail shareholders who do not normally participate in voting get extra dividend through DVR shares
In India, DVR shares were first issued by Tata Motors in 2008.
Performance of DVR shares vs Ordinary Shares
Though DVR shares provide additional premium, they perform almost the same as that of normal shares of that company over time.
Pros and Cons of DVR Shares
Pros:
- Higher Dividends for shareholders
- Lesser dilution of Voting Rights of the Company even after raising capital
Cons:
- DVR shares are less liquid than normal shares
- Not many companies in India have issued DVR shares due to legal complexities
- Prohibition by SEBI that DVR shares can not be more than normal shares issued of that company
- Giving up voting rights for such a small dividend premium is not preferred by institutional investors