What's in a Vote? The Short- and Long-Run Impact of Dual-Class Equity on IPO Firm Values

Abstract:     
We find that relative to fundamentals, dual-class firms trade at lower prices than do single-class firms both at the IPO date and for at least the subsequent five years. The lower prices attached to dual-class firms do not foreshadow abnormally low stock or accounting returns. However, CEO turnover events do occur less frequently among dual-class firms and the circumstances surrounding CEO turnover vary between single- and dual-class companies. When dual-class firms unify their share classes statistically and economically significant value gains occur. Collectively, our results suggest that the governance associated with dual-class equity influences the pricing of dual-class firms.

Number of Pages in PDF File: 50

Keywords: Initial public offerings, Dual class, Ownership structure, Governance, Firm value, Long-run performance, CEO turnover

JEL Classification: G12, G14, G30, G32, G34

working papers series