The Life-Cycle of Dual Class Firm Valuation

77 Pages Posted: 1 Nov 2017 Last revised: 21 Oct 2020

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)

Date Written: September 30, 2020

Abstract

We examine U.S. dual and single class firms in 1980-2017, and document that the valuation difference between dual and single class firms varies over their life cycle. At the IPO, dual class firms have higher mean valuations than single-class firms, and we present evidence suggesting that this premium is related to founders’ unique vision and leadership skills. As firms age, the valuation premium dissipates, probably because of agency problems’ aggravation at dual class firms driven by the widening of the wedge (difference between voting and equity stakes of controlling shareholders of dual class firms) in the years after the IPO.

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 (September 30, 2020). 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

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