The Life-Cycle of Dual Class Firm Valuation

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