The Life-Cycle of Dual Class Firm Valuation

58 Pages Posted: 1 Nov 2017 Last revised: 17 Aug 2022

See all articles by Martijn Cremers

Martijn Cremers

University of Notre Dame; ECGI

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); Harvard University - Harvard Law School

Date Written: June 30, 2022

Abstract

We examine U.S. dual and single class firms in 1980-2019 and document their valuation differences over their corporate life cycle. At the IPO, dual class firms have higher mean valuations than single-class firms, and there is some evidence that this premium may emanate from dual class firm founders’ unique vision and leadership skills. As firms age, the valuation premium of dual class firms tends to dissipate, possibly because dual class agency problems increase due to a gradual widening of the wedge (difference between insider voting and cash flow rights) in the post-IPO years.

Keywords: Dual class shares; life cycle; anti-takeover defenses; unifications; founder-led firms; 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 (June 30, 2022). 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

ECGI ( email )

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

Beni Lauterbach

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

Ramat Gan
Israel

European Corporate Governance Institute (ECGI) ( email )

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

Harvard University - Harvard Law School ( email )

1563 Massachusetts Avenue
Cambridge, MA 02138
United States

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