Weakened Outside Shareholder Rights in Dual-Class Firms and Timely Loss Reporting
Journal of Contemporary Accounting and Economics (JCAE), 9(2) (December 2013): 203-220.
Posted: 29 Aug 2013 Last revised: 10 Apr 2019
Date Written: August 29, 2013
In this paper, we examine timely loss reporting for U.S. firms with a dual-class share structure, i.e., firms characterized by a divergence (wedge) between insiders’ voting rights and cash flow rights. In our primary analysis, we find compelling evidence that the wedge (quantified by excess voting rights) is associated with less timely loss reporting for these firms. In our secondary analysis, in which we match our sample of dual-class share observations with a sample of single-class share observations, we find similar results. Our paper informs public policy by showing that weakened outside shareholder rights matter, even in the U.S., where, despite a strong investor protection environment, dual-class firms are less timely in recognizing bad news in reported earnings.
Keywords: accounting conservatism, dual-class share structure firms, managerial entrenchment, shareholder rights
JEL Classification: M41, M48
Suggested Citation: Suggested Citation