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The Dual Class Premium: A Family Affair

54 Pages Posted: 25 Jul 2017 Last revised: 14 Aug 2017

Ronald C. Anderson

Temple University - Department of Finance

Ezgi Ottolenghi

Texas Tech University

David M. Reeb

National University of Singapore

Date Written: August 14, 2017

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

Suggested Citation

Anderson, Ronald C. and Ottolenghi, Ezgi and Reeb, David M., The Dual Class Premium: A Family Affair (August 14, 2017). Fox School of Business Research Paper No. 17-021. Available at SSRN: https://ssrn.com/abstract=3006669

Ronald Anderson

Temple University - Department of Finance ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States

Ezgi Ottolenghi

Texas Tech University ( email )

2500 Broadway
Lubbock, TX 79409
United States

David Reeb (Contact Author)

National University of Singapore ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

HOME PAGE: http://www.davidreeb.net

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