Concentrated Control and Corporate Value: A Comparative Analysis of Single and Dual Class Structures in Canada

Posted: 15 Dec 2008

See all articles by Ben Amoako-Adu

Ben Amoako-Adu

Wilfrid Laurier University - School of Business & Economics

Brian F. Smith

Wilfrid Laurier University

Madhu Kalimipalli

Lazaridis School of Business and Economics, Wilfrid Laurier University

Date Written: December 14, 2008

Abstract

This study directly examines the empirical relationship between corporate value and three distinct ownership structures using data from Canada, where the securities laws and shareholder protection conditions are similar to those of the US (La Porta et al., 1999) but corporate control tends to be more concentrated (Holderness et al., 1999). Ownership structure is classified in three ways: dual class firms, single class closely-held firms, and widely-held firms. The focus of this paper is to test for the impact of concentrated control on corporate value using either dual class or single class closely-held ownership structure. The empirical results, using both fixed and random effects estimation methods, show that after controlling for size, financial leverage, percentage of outside directors, and industry differences, dual class companies sell at a significant discount compared to closely-held single class companies. Consistent with Claessens et al. (2002), and Gompers et al. (2004) dual class structure in Canada lessens corporate value because it lowers shareholder and manager alignment and increases agency problems. We also find that pyramid structure has a negative impact on value in both dual class and single class closely-held companies.

Keywords: Dual Class, Concentrated Control

JEL Classification: G32

Suggested Citation

Amoako-Adu, Ben and Smith, Brian Frederick and Kalimipalli, Madhu, Concentrated Control and Corporate Value: A Comparative Analysis of Single and Dual Class Structures in Canada (December 14, 2008). Applied Financial Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1316127

Ben Amoako-Adu

Wilfrid Laurier University - School of Business & Economics ( email )

Financial Services Research Centre
Waterloo, Ontario N2L 3C5
CANADA
519-884-1970 (Phone)
519-884-0201 (Fax)

Brian Frederick Smith (Contact Author)

Wilfrid Laurier University ( email )

75 University Ave W
Waterloo, Ontario N2L 3C5
Canada

Madhu Kalimipalli

Lazaridis School of Business and Economics, Wilfrid Laurier University ( email )

Waterloo, Ontario N2L 3C5
Canada
519-884-0710 (Phone)

HOME PAGE: http://www.madhukalimipalli.com/

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