The Life-Cycle of Dual Class Firm Valuation

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