Dual Class Share Structure and Innovation
66 Pages Posted: 16 Jun 2018 Last revised: 10 Sep 2018
Date Written: September 4, 2018
Utilizing a sample of dual and single class firms matched on pre-IPO innovation and drivers of dual class IPO initiation, we find a positive association between disproportionate insider control and patent output, quality, and creativity. This innovativeness mitigates the negative effect of disproportionate insider control on firm value and is robust to antitakeover protection. Managers of firms characterized by disproportionate insider control also take more personal innovative risk by filing their own patents. However, positive effects are concentrated only in financially constrained firms and boost innovativeness for only about five years following the firms’ IPO, supporting calls for sunset provisions.
Keywords: Innovation, Dual Class, Governance, Firm Value
JEL Classification: G32, G34, O31, O32
Suggested Citation: Suggested Citation