Bucking the Trend: Why do IPOs Choose Controversial Governance Structures and Why Do Investors Let Them

64 Pages Posted: 5 Jan 2017 Last revised: 7 Oct 2020

See all articles by Laura Casares Field

Laura Casares Field

University of Delaware - Alfred Lerner College of Business and Economics

Michelle Lowry

Drexel University; European Corporate Governance Institute (ECGI)

Date Written: October 6, 2020

Abstract

While the percentage of mature firms with classified boards or dual class shares has declined by more than 40% since 1990, the percentage of IPO firms with these structures has doubled over this period. We test whether IPO firms implement these structures optimally or whether they are utilized to allow managers to protect their private benefits of control. Both shareholder voting patterns and changes in firm types going public suggest that the Optimal Governance hypothesis best explains IPO firms’ use of classified boards. There is considerable heterogeneity across dual class firms, with some more consistent with optimal governance and others with agency.

Keywords: IPO, Classified Board, Dual Class, Governance

Suggested Citation

Field, Laura Casares and Lowry, Michelle B., Bucking the Trend: Why do IPOs Choose Controversial Governance Structures and Why Do Investors Let Them (October 6, 2020). Available at SSRN: https://ssrn.com/abstract=2889333 or http://dx.doi.org/10.2139/ssrn.2889333

Laura Casares Field

University of Delaware - Alfred Lerner College of Business and Economics ( email )

419 Purnell Hall
Newark, DE 19716
United States
302-831-3810 (Phone)

Michelle B. Lowry (Contact Author)

Drexel University ( email )

Philadelphia, PA 19104
United States
215-895-6070 (Phone)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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