Dual-Class Shares and Firm Valuation: Market-Wide Evidence from Regulatory Events

66 Pages Posted: 14 Dec 2020 Last revised: 6 Sep 2022

See all articles by Ugur Lel

Ugur Lel

University of Georgia - Department of Banking and Finance; European Corporate Governance Institute (ECGI)

Jeffry M. Netter

Department of Finance; University of Georgia Law School

Annette B. Poulsen

University of Georgia - Department of Banking and Finance; European Corporate Governance Institute (ECGI)

Zhongling Qin

Auburn University - Department of Finance

Date Written: August 1, 2022

Abstract

In the 1980s, stock exchanges and eventually the SEC took actions that affected the eligibility of listed firms to adopt dual-class shares with differential voting rights. In contrast to previous work, we use methodology relying on market-wide reactions to multiple regulatory events to show that risk-adjusted stock returns increase (decrease) in reaction to events that decrease (increase) the probability of firms' ability to adopt dual-class shares. This short-run reaction varies systematically across firms, suggesting that investors view dual-class shares positively in research-intensive and well-governed firms. In the long run, banning dual-class shares leads to lower research output, firm value, and profitability. Overall, our results suggest that dual-class shares increase valuations and facilitate innovation.

Keywords: Dual Class, One-Share One-Vote, Rule 19c-4, Regulation, Innovation

JEL Classification: G14, G18, G32, G34, K22

Suggested Citation

Lel, Ugur and Netter, Jeffry M. and Poulsen, Annette B. and Qin, Zhongling, Dual-Class Shares and Firm Valuation: Market-Wide Evidence from Regulatory Events (August 1, 2022). European Corporate Governance Institute – Finance Working Paper No. 807/2021, Available at SSRN: https://ssrn.com/abstract=3729297 or http://dx.doi.org/10.2139/ssrn.3729297

Ugur Lel (Contact Author)

University of Georgia - Department of Banking and Finance ( email )

Terry College of Business
Athens, GA 30602-6253
United States

European Corporate Governance Institute (ECGI) ( email )

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

Jeffry M. Netter

Department of Finance ( email )

Terry College of Business
Athens, GA 30602-6253
United States
706-542-4450 (Phone)

HOME PAGE: http://www.terry.uga.edu/directory/profile/jnetter/

University of Georgia Law School

225 Herty Drive
Athens, GA 30602
United States

Annette B. Poulsen

University of Georgia - Department of Banking and Finance ( email )

Terry College of Business
Department of Finance
Athens, GA 30602-6253
United States
706-542-4450 (Phone)

HOME PAGE: http://www.terry.uga.edu/directory/profile/apoulsen/

European Corporate Governance Institute (ECGI) ( email )

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

Zhongling Qin

Auburn University - Department of Finance ( email )

Harbert College of Business
Auburn, AL 36849
United States

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