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Extreme Governance: An Analysis of Dual-Class Companies in the United States

AFA 2005 Philadelphia Meetings

Rodney L. White Center for Financial Research Working Paper No. 12-04

Rock Center for Corporate Governance Working Paper No. 39

61 Pages Posted: 8 Jul 2004 Last revised: 29 Sep 2009

Paul A. Gompers

Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Joy L. Ishii

Stanford Graduate School of Business

Andrew Metrick

Yale School of Management; National Bureau of Economic Research (NBER)

Date Written: May 1, 2008

Abstract

We construct and analyze a comprehensive list of dual-class firms in the United States and use this list to investigate the relationship between insider ownership and firm value. Our data has two useful features for this valuation analysis. First, since dual-class stock separates cash-flow rights from voting rights, we can separately identify the impact of each. Second, we address endogeneity concerns by using exogenous predictors of dual-class status as instruments. While other data sets have provided one of these features, our data set is the first to provide both. In single-stage regressions, we find strong evidence that firm value is increasing in insiders' cash-flow rights and decreasing in insider voting rights. In instrumental-variable regressions, the point estimates remain the same sign and magnitude, but the significance levels are lower.

Suggested Citation

Gompers, Paul A. and Ishii, Joy L. and Metrick, Andrew, Extreme Governance: An Analysis of Dual-Class Companies in the United States (May 1, 2008). AFA 2005 Philadelphia Meetings; Rodney L. White Center for Financial Research Working Paper No. 12-04; Rock Center for Corporate Governance Working Paper No. 39. Available at SSRN: https://ssrn.com/abstract=562511 or http://dx.doi.org/10.2139/ssrn.562511

Paul A. Gompers

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6297 (Phone)
617-496-8443 (Fax)

Harvard University - Entrepreneurial Management Unit ( email )

Cambridge, MA 02163
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Joy L. Ishii

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Andrew Metrick (Contact Author)

Yale School of Management ( email )

165 Whitney Avenue
New Haven, CT 06511
United States
(203)-432-3069 (Phone)

HOME PAGE: http://faculty.som.yale.edu/andrewmetrick/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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