The Rise of Dual-Class Stock IPOs

73 Pages Posted: 4 Nov 2020

See all articles by Dhruv Aggarwal

Dhruv Aggarwal

Yale University, Law School, Students ; Yale University, School of Management, Students

Ofer Eldar

Duke University School of Law; Duke University - Fuqua School of Business; Duke Innovation & Entrepreneurship Initiative

Yael V. Hochberg

National Bureau of Economic Research (NBER); Rice University - Jesse H. Jones Graduate School of Business

Lubomir P. Litov

University of Oklahoma - Michael F. Price College of Business; University of Pennsylvania - Wharton Financial Institutions Center

Date Written: September 12, 2020

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

Suggested Citation

Aggarwal, Dhruv and Eldar, Ofer and Hochberg, Yael V. and Litov, Lubomir P., The Rise of Dual-Class Stock IPOs (September 12, 2020). Available at SSRN: https://ssrn.com/abstract=3690670 or http://dx.doi.org/10.2139/ssrn.3690670

Dhruv Aggarwal

Yale University, Law School, Students ( email )

127 Wall Street
New Haven, CT 06511
United States

Yale University, School of Management, Students ( email )

New Haven, CT
United States

Ofer Eldar (Contact Author)

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Yael V. Hochberg

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

Lubomir P. Litov

University of Oklahoma - Michael F. Price College of Business ( email )

307 West Brooks
Norman, OK 73019-4004
United States

University of Pennsylvania - Wharton Financial Institutions Center

2306 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
United States

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