Growth Opportunities, Short-Term Market Pressure, and Dual-Class Share Structure

58 Pages Posted: 2 Aug 2014

See all articles by Bradford D. Jordan

Bradford D. Jordan

University of Kentucky - Gatton College of Business and Economics

Soohyung Kim

The University of Tampa

Mark H. Liu

University of Kentucky - Gatton College of Business and Economics

Date Written: November 11, 2013

Abstract

While the costs associated with dual-class shares and other antitakeover provisions are widely documented, the benefits are rarely studied in the literature. We test the hypothesis that dual-class shares, like other antitakeover provisions, can help managers focus on the implementation of long-term projects while avoiding short-term market pressure. Consistent with this idea, we find that dual-class firms face lower short-term market pressure than single-class firms. In particular, they have less transient or short-term institutional holdings, a lower probability of being taken over, and lower analyst coverage. Dual-class firms also tend to have more growth opportunities (higher sales growth and R&D intensity) than single-class firms. To address endogeneity concerns, we evaluate a sample of dual-class share unifications and find that growth opportunities decline while short-term market pressure increases after share unifications.

Keywords: dual class shares, voting rights, cash flow rights, share unification, sales growth, R&D expenditure

Suggested Citation

Jordan, Bradford D. and Kim, Soohyung and Liu, Mark H., Growth Opportunities, Short-Term Market Pressure, and Dual-Class Share Structure (November 11, 2013). Available at SSRN: https://ssrn.com/abstract=2474645 or http://dx.doi.org/10.2139/ssrn.2474645

Bradford D. Jordan

University of Kentucky - Gatton College of Business and Economics ( email )

550 South Limestone
Lexington, KY 40506
United States
859-257-4887 (Phone)
859-257-9688 (Fax)

Soohyung Kim

The University of Tampa ( email )

401 W. Kennedy Blvd.
Tampa, FL 33606-1490
United States

Mark H. Liu (Contact Author)

University of Kentucky - Gatton College of Business and Economics ( email )

550 South Limestone
Lexington, KY 40506
United States
859-257-9842 (Phone)
859-257-9688 (Fax)

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