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

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