The Rise of Dual-Class Stock IPOs

Abstract

We use a novel dataset to examine the nature and determinants of voting and economic rights in dual-class IPOs. We document that not all dual-class IPOs have similar structures, and that there exist multiple different types of controlling shareholders and control wedges. Founder-controlled dual-class IPOs differ substantially from those with other types of controlling shareholders, and the wedge between founders' voting and economic rights and those of other shareholders is largest when founders have strong bargaining power. The increase in founder wedge over time appears to be due to (1) increased venture capitalist willingness to accommodate founder control, (2) technological shocks that increased founders' bargaining power by reducing the need for external financing, and (3) an increase in foreign firm IPOs.

Keywords: Corporate Governance, Dual-class, Entrepreneurship, Venture Capital, Private Firms, Initial Public Offerings (IPOs), Raising Capital

JEL Classification: G34, G28, G24