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Managerial bonding and stock liquidity: An analysis of dual-class firms

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  • Ekkehart Boehmer

  • Gary Sanger

  • Sanjay Varshney

Abstract

Given the decision to create a second class of stock through a dual-class structure, we propose that management is more (less) likely to create a liquid secondary market for both classes of shares the lower (higher) its willingness to tie its personal wealth to firm performance. If market makers recognize this relation, they should assign a higher likelihood to trades motivated by superior information in shares of firms that list both classes of stock and a lower likelihood for firms that list only one class of stock pursuant to recapitalization. Additionally, they should assign a lower likelihood to trades motivated by superior information in shares of IPOs that choose a dual-class structure and list only one class relative to IPOs that remain single-class. Our empirical tests based on IPOS and recaps between 1985 and 1988 provide support for these propositions. Copyright Academy of Economics and Finance 2004

Suggested Citation

  • Ekkehart Boehmer & Gary Sanger & Sanjay Varshney, 2004. "Managerial bonding and stock liquidity: An analysis of dual-class firms," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 28(1), pages 117-131, March.
    • Handle: RePEc:spr:jecfin:v:28:y:2004:i:1:p:117-131
    DOI: 10.1007/BF02761459
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    References listed on IDEAS

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    1. R. Charles Moyer & Ramesh Rao & Phillip M. Sisneros, 1992. "Substitutes for Voting Rights: Evidence From Dual Class Recapitalizations," Financial Management, Financial Management Association, vol. 21(3), Fall.
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    2. Edith Ginglinger & Jacques Hamon, 2012. "Ownership, control and market liquidity," Finance, Presses universitaires de Grenoble, vol. 33(2), pages 61-99.
    3. repec:dau:papers:123456789/2709 is not listed on IDEAS

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