Dual Class Shares: Do Investors Suffer?

Abstract

Exchanges and index providers increasingly push firms to equalize shareholder voting rights. We explore the potential harm arising from dual-class structures by studying the identity and returns of minority shareholders. First, we find that sophisticated investors disproportionately own low-voting shares. Second, founders and descendants control 89% of dual-class firms across the Russell 3000. Third, low-voting shareholders receive a positive risk premium rather than suffering low returns. Our findings suggest that minority shareholders care about the presence of a controlling shareholder rather than a particular voting structure. Minority shareholders receive compensation via higher expected returns for bearing the associated control-right risk.

Keywords: Dual-class shares, voting rights, controlling shareholders, minority shareholders, monitoring