The Life-Cycle of Dual Class Firms

Abstract

We examine an extensive matched sample of U.S. dual and single class firms in 1980-2015 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. Further tests examine firm survival and the desirability of a sunset provision for dual class structures.

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

JEL Classification: G32, G34