Sticking around Too Long? Dynamics of the Benefits of Dual-Class Voting

65 Pages Posted: 21 Mar 2018 Last revised: 13 Mar 2019

See all articles by Hyunseob Kim

Hyunseob Kim

Federal Reserve Bank of Chicago

Roni Michaely

The University of Hong Kong; ECGI

Date Written: January 2, 2019

Abstract

Using a new dataset of corporate voting-rights from 1971 to 2015, we find that young dual-class firms trade at a premium and operate at least as efficiently as young single-class firms. As dual-class firms mature, their valuation declines, and they become less efficient in their margins, innovation, and labor productivity compared to their single-class counterparts. Voting premiums increase with firm age, suggesting that private benefits increase over maturity. Most sunset provisions that dual-class firms adopt are ineffective. Our findings suggest that effective, time-consistent sunset provisions would be based on age or on inferior shareholders’ periodic right to eliminate dual-class voting.

Keywords: Dual class shares; Voting rights; Sunset provisions; Firm maturity

JEL Classification: G14, G18, G30

Suggested Citation

Kim, Hyunseob and Michaely, Roni, Sticking around Too Long? Dynamics of the Benefits of Dual-Class Voting (January 2, 2019). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 590/2019, Swiss Finance Institute Research Paper No. 19-09, Available at SSRN: https://ssrn.com/abstract=3145209 or http://dx.doi.org/10.2139/ssrn.3145209

Hyunseob Kim (Contact Author)

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

HOME PAGE: http://sites.google.com/view/hyunseobkim/research

Roni Michaely

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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