The Life-Cycle of Dual Class Firm Valuation

64 Pages Posted: 1 Nov 2017 Last revised: 19 Dec 2018

See all articles by Martijn Cremers

Martijn Cremers

University of Notre Dame

Beni Lauterbach

Bar-Ilan University - Graduate School of Business Administration; European Corporate Governance Institute (ECGI)

Anete Pajuste

Stockholm School of Economics, Riga; European Gorporate Governance Institute (ECGI)

Date Written: December 19, 2018

Abstract

We examine an extensive matched sample of U.S. dual and single class firms in 1980-2017 from the time of their IPO, and document that the valuation difference between dual and single class firms varies over their life cycle. On average, around the time of the IPO, dual class firms have higher valuations than single-class firms. Over time, this valuation premium tends to dissipate, whereas the difference between voting and equity stakes of the controlling shareholders of dual class firms (the "wedge") tends to increase. Our results provide support for the availability of dual class structures at the IPO as well as the desirability of age-based sunset provisions for such structures.

Keywords: Dual class shares, life cycle, anti-takeover defenses, unifications, sunset provisions

JEL Classification: G32, G34

Suggested Citation

Cremers, K. J. Martijn and Lauterbach, Beni and Pajuste, Anete, The Life-Cycle of Dual Class Firm Valuation (December 19, 2018). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 550/2018. Available at SSRN: https://ssrn.com/abstract=3062895 or http://dx.doi.org/10.2139/ssrn.3062895

K. J. Martijn Cremers (Contact Author)

University of Notre Dame ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States

Beni Lauterbach

Bar-Ilan University - Graduate School of Business Administration ( email )

Ramat Gan
Israel

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Anete Pajuste

Stockholm School of Economics, Riga ( email )

Strelnieku iela 4a
Riga, LV 1010
Latvia

European Gorporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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