The Rise of Dual-Class Stock IPOs

Abstract

We create a novel dataset to examine the recent rise in dual-class IPOs. We document that dual-class firms have different types of controlling shareholders and wedges between voting and economic rights, and that the increasing popularity of dual-class structures is driven by founder-controlled firms. We find that founders’ wedge is greater when founders have stronger bargaining power. The increase in founder control over time is due to greater availability of private capital and technological shocks that reduced firms’ needs for external financing. Stronger bargaining power is also associated with a lower likelihood of sunset provisions that terminate dual-class structures.

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

JEL Classification: G34, G28, G24