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Sticking around Too Long? Dynamics of the Benefits of Dual-Class Voting

Author

Listed:
  • Hyunseob Kim

    (Cornell University - Samuel Curtis Johnson Graduate School of Management)

  • Roni Michaely

    (University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute)

Abstract

Using a new dataset of corporate voting-rights from 1971 to 2015, we find that young dual-class firms trade at a premium and operate at least as efficiently as young single-class firms. As dual-class firms mature, their valuation declines, and they become less efficient in their margins, innovation, and labor productivity compared to their single-class counterparts. Voting premiums increase with firm age, suggesting that private benefits increase over maturity. Most sunset provisions that dual-class firms adopt are ineffective. Our findings suggest that effective, time-consistent sunset provisions would be based on age or on inferior shareholders’ periodic right to eliminate dual-class voting.

Suggested Citation

  • Hyunseob Kim & Roni Michaely, 2019. "Sticking around Too Long? Dynamics of the Benefits of Dual-Class Voting," Swiss Finance Institute Research Paper Series 19-09, Swiss Finance Institute, revised Mar 2019.
    • Handle: RePEc:chf:rpseri:rp1909
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    Citations

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    Cited by:

    1. Field, Laura Casares & Lowry, Michelle, 2022. "Bucking the trend: Why do IPOs choose controversial governance structures and why do investors let them?," Journal of Financial Economics, Elsevier, vol. 146(1), pages 27-54.
    2. Amore, Mario Daniele & Pelucco, Valerio & Quarato, Fabio, 2022. "Family ownership during the Covid-19 pandemic," Journal of Banking & Finance, Elsevier, vol. 135(C).
    3. Aggarwal, Dhruv & Eldar, Ofer & Hochberg, Yael V. & Litov, Lubomir P., 2022. "The rise of dual-class stock IPOs," Journal of Financial Economics, Elsevier, vol. 144(1), pages 122-153.
    4. Lin, James Juichia & Shi, Wei-Zhong & Tsai, Li-Fang & Yu, Min-Teh, 2022. "Corporate cash and the Firm's life-cycle: Evidence from dual-class firms," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 27-48.

    More about this item

    Keywords

    Dual class shares; Voting rights; Sunset provisions; Firm maturity;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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