Claims On Equity: Voting And Liquidity Differentials, Cash flow Preferences And Financing Rights

In practice, though, claims on equity can vary on a number of dimensions. First, the claim can be a direct and perpetual one or it can be contingent on the value changing. Second, some equity investors have preferential claims on the cash flows - dividends in some cases and cash flows in liquidation in other cases. Third, some equity claims have superior control rights over other claims. Fourth, some equity investors are provided with special rights to protect their interests when the firm acts in later periods. Finally, equity claims can vary in terms of liquidity, with some claims being more marketable than others.