The Rise of Dual-Class Stock IPOs

78 Pages Posted: 4 Nov 2020 Last revised: 11 Feb 2022

See all articles by Dhruv Aggarwal

Dhruv Aggarwal

Northwestern Pritzker School of Law

Ofer Eldar

University of California, Berkeley - School of Law; European Corporate Governance Institute (ECGI)

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

Multiple version iconThere are 2 versions of this paper

Date Written: November 23, 2021

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

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 (November 23, 2021). Journal of Financial Economics (JFE), Vol. 144, No. 1, 2022, European Corporate Governance Institute – Finance Working Paper No. 806/2021, Available at SSRN: https://ssrn.com/abstract=3690670 or http://dx.doi.org/10.2139/ssrn.3690670

Dhruv Aggarwal

Northwestern Pritzker School of Law ( email )

750 N. Lake Shore Drive
Chicago, IL 60611
United States

Ofer Eldar (Contact Author)

University of California, Berkeley - School of Law ( email )

215 Law Building
Berkeley, CA 94720-7200
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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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