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.

Mays Business School Research Paper No. 2318027

Posted: 29 Aug 2013 Last revised: 10 Apr 2019

See all articles by Inder K. Khurana

Inder K. Khurana

University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business

K. K. Raman

The University of Texas at San Antonio

Dechun Wang

Texas A&M University

Date Written: August 29, 2013

Abstract

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

Khurana, Inder and Raman, K. K. and Wang, Dechun, Weakened Outside Shareholder Rights in Dual-Class Firms and Timely Loss Reporting (August 29, 2013). Journal of Contemporary Accounting and Economics (JCAE), 9(2) (December 2013): 203-220.; Mays Business School Research Paper No. 2318027. Available at SSRN: https://ssrn.com/abstract=2318027

Inder Khurana

University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business ( email )

331 Cornell Hall
Columbia, MO 65211
United States
573-882-3474 (Phone)
573-882-2437 (Fax)

K. K. Raman (Contact Author)

The University of Texas at San Antonio ( email )

One UTSA Circle
San Antonio, TX 78249
United States
210-458-8749 (Phone)

Dechun Wang

Texas A&M University ( email )

430 Wehner
College Station, TX 77843-4353
United States

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