The Life-Cycle of Dual Class Firm Valuation

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