The Impact of Family Ownership and Dual Class Shares on Takeover Risk

Abstract:     
Some studies have provided evidence that dual class shares reduce firm market value. Other studies have shown that dual class shares are more common in countries where the proxies for private benefits of control are low. In this paper we explore whether the negative relation between firm market value and dual class shares can be explained by lower takeover probability. For family controlled firms, we find that both the hazard rate of takeover and firm market value decline with dual class shares and firm leverage. We conclude that families entrench themselves by using dual class shares and by manipulating firm capital structure and this translates into lower firm value.

Number of Pages in PDF File: 30

Keywords: Takeovers, Ownership Structure, Dual Class Shares, Capital Structure, Family Firms, Hazard Functions

JEL Classification: G32, G34

working papers series