Dual Class Shares, Board of Directors' Effectiveness and Firm's Market Value: An Empirical Study

de Andrade, L.P., Bressan, A.A. & Iquiapaza, R.A. J Manag Gov (2017). DOI 10.1007/s10997-017-9375-7

Posted: 24 Oct 2017 Last revised: 20 Feb 2018

See all articles by Lélis Andrade

Lélis Andrade

Federal Institute of Minas Gerais (IFMG) - Campus Formiga

Aureliano A. Bressan

Federal University of Minas Gerais (UFMG) - Center for Post Graduation and Research in Administration (CEPEAD)

Robert Aldo Iquiapaza

Federal University of Minas Gerais (UFMG) - Center for Post Graduation and Research in Administration (CEPEAD)

Date Written: March 4, 2017

Abstract

This study aims to identify whether a relationship exists between the controlling shareholders’ voting power and outside directors’ effectiveness in maximizing firms’ financial performance. We analyze a panel data with 3057 observations for the 2000–2012 period using a random effects model, logit and probit regressions, and the two-stage model of Heckman in the Brazilian stock market. Our findings show that firms whose controlling shareholders use dual class shares to leverage their voting power have less independence from the board and worse financial performance and market value. Further, the percentage of outside directors tends to be ineffective in increasing the firm’s value, and in changing the firm’s chief executive officer (CEO) when (1) the controlling shareholder’s voting power is leveraged, or (2) when the CEO assumes a position on the board of directors simultaneously. We interpreted that these results are in line with the arguments in favor of the existence of a new agency cost, which is related to the undue obedience of board members to authority, such as the largest controlling shareholder or the CEO in Brazilian listed firms.

Keywords: Voting Power, Dual Class Shares, Outside Directors, Agency Costs

JEL Classification: G32, M21

Suggested Citation

Andrade, Lélis and Bressan, Aureliano Angel and Iquiapaza, Robert Aldo, Dual Class Shares, Board of Directors' Effectiveness and Firm's Market Value: An Empirical Study (March 4, 2017). de Andrade, L.P., Bressan, A.A. & Iquiapaza, R.A. J Manag Gov (2017). DOI 10.1007/s10997-017-9375-7, Available at SSRN: https://ssrn.com/abstract=2980874

Lélis Andrade

Federal Institute of Minas Gerais (IFMG) - Campus Formiga ( email )

Rua São Luiz Gonzaga, s/nº, São Luiz
Formiga, MG, 35570000
Brazil

HOME PAGE: http://www.formiga.ifmg.edu.br/

Aureliano Angel Bressan

Federal University of Minas Gerais (UFMG) - Center for Post Graduation and Research in Administration (CEPEAD) ( email )

Av. Antonio Carlos, 6627
MG30170-120 Belo Horizonte, 31270-901
Brazil

Robert Aldo Iquiapaza (Contact Author)

Federal University of Minas Gerais (UFMG) - Center for Post Graduation and Research in Administration (CEPEAD) ( email )

Av. Antônio Carlos 6627 - Pampulha
Faculdade de Ciências Econômicas
Belo Horizonte, MG 31270-901
Brazil

HOME PAGE: http://www.cepead.face.ufmg.br

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