The Dual Class Premium: A Family Affair

Abstract

Critics advocate eliminating dual class shares. We find that founding families control 89% of dual class firms, potentially confounding economic inferences regarding these structures. Using industry, market and Fama-French excess returns, we find a buy-and-hold strategy of dual class family firms, annually makes an additional 350 basis points over the benchmark. Institutional owners garner a disparate portion of these excess returns by holding over 87% of their floated shares. These investors demand a premium for holding dual-class family firms, suggesting a market-driven resolution to concerns about limited voting shares. In contrast, non-family dual class firms possess high stock valuations and insignificant excess returns. Overall, our analysis suggests that investors exhibit substantial concerns over family control rather than dual class structures.

Keywords: Super voting rights, dual class shares, product quality, short-termism, family firms, security regulation

JEL Classification: G31, K22, L22, G23