More than Meets the Eye: Reassessing the Empirical Evidence on US Dual-Class Stock

37 Pages Posted: 10 Apr 2020 Last revised: 2 Sep 2020

See all articles by Bobby V. Reddy

Bobby V. Reddy

Faculty of Law, University of Cambridge

Date Written: March 14, 2020

Abstract

Dual-class stock enables a company’s controller to retain voting control of a corporation while holding a disproportionately lower level of the corporation’s cash-flow rights. Dual-class stock has led a tortured life in the US. Between institutional investor derision and the exclusion or restriction of dual-class stock from certain indices, one may assume that dual-class structure must be harmful to outside stockholders. However, in this article, the existing empirical evidence on US dual-class stock will be reassessed by contrasting studies that use different measures of performance. It will be shown that although dual-class firms are generally valued less than similar one-share, one-vote firms, they perform as well as, and, in many cases, outperform, such firms from the perspective of operating performance and stock returns. When it comes to dual-class stock, more than meets the eye, and a presumption that dual-class stock is harmful for outside stockholders should not guide policy formulation.

Keywords: Dual-Class Stock, One Share One Vote, Empirical Evidence, Long-Termism, Big Tech

JEL Classification: G30, G32, G34, G38, K22

Suggested Citation

Reddy, Bobby, More than Meets the Eye: Reassessing the Empirical Evidence on US Dual-Class Stock (March 14, 2020). University of Pennsylvania Journal of Business Law, Forthcoming, University of Cambridge Faculty of Law Research Paper No. 20/2020, Available at SSRN: https://ssrn.com/abstract=3554428 or http://dx.doi.org/10.2139/ssrn.3554428

Bobby Reddy (Contact Author)

Faculty of Law, University of Cambridge ( email )

10 West Road
Cambridge, CB3 9DZ
United Kingdom

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