The Effect of Capital Structure and Consolidated Control on Firm Performance: The Case of Dual-Class IPOs

EMPIRICAL ISSUES IN RAISING EQUITY CAPITAL, Mario Levis, ed., Advances in Finance, Investment, and Banking, Elsevier, 1995

Posted: 6 Oct 2004

See all articles by Ekkehart Boehmer

Ekkehart Boehmer

Singapore Management University - Lee Kong Chian School of Business

Gary C. Sanger

Louisiana State University, Baton Rouge - E.J. Ourso College of Business Administration

Sanjay B. Varshney

SUNY Institute of Technology at Utica/Rome - School of Management

Abstract

We analyze short-term and long-term performance of firms that go public with more than one class of common stock. To assess performance differences that are due to the firm's ownership structure, we create a control sample of single-class IPOs that is matched to the dual-class firms by exchange, offer date, industry, and size. For a comprehensive sample of 98 dual-class IPOs, we document that dual-class firms outperform their matched single-class counterparts in terms of stock-market returns as well as accounting measures of firm performance. Moreover, we find no statistically significant abnormal long-run performance over a three year horizon for dual-class firms. This contrasts with Ritter's (1991) result that IPOs significantly underperform in the three years after going public. We conclude that going public with a dual-class equity structure has net benefits for investors in those firms that choose this specific organizational structure, as evidenced by better operating performance and larger equity returns relative to other IPOs.

JEL Classification: G32, G34

Suggested Citation

Boehmer, Ekkehart and Sanger, Gary C. and Varshney, Sanjay B., The Effect of Capital Structure and Consolidated Control on Firm Performance: The Case of Dual-Class IPOs. EMPIRICAL ISSUES IN RAISING EQUITY CAPITAL, Mario Levis, ed., Advances in Finance, Investment, and Banking, Elsevier, 1995, Available at SSRN: https://ssrn.com/abstract=563035

Ekkehart Boehmer (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

Singapore

Gary C. Sanger

Louisiana State University, Baton Rouge - E.J. Ourso College of Business Administration ( email )

2163 CEBA
Baton Rouge, LA 70803-6308
United States
225-578-6353 (Phone)
225-578-6366 (Fax)

Sanjay B. Varshney

SUNY Institute of Technology at Utica/Rome - School of Management ( email )

Utica, NY 13504
United States

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