Concentrated Control: A Comparative Analysis of Single and Dual Class Structures on Corporate Value

36 Pages Posted: 17 Nov 2006

See all articles by Ben Amoako-Adu

Ben Amoako-Adu

Wilfrid Laurier University - School of Business & Economics

Brian F. Smith

Wilfrid Laurier University

Madhu Kalimipalli

Lazaridis School of Business and Economics, Wilfrid Laurier University

Date Written: November 2006

Abstract

This study directly examines the empirical relationship between corporate value and three distinct ownership structures using data from Canada, where the securities laws and shareholder protection conditions are similar to those of the US (La Porta et al., 1999) but corporate control tends to be more concentrated (Holderness et al., 1999). Ownership structure is classified in three ways: dual class firms, single class closely-held firms, and widely-held firms. The focus of this paper is to test for the impact of concentrated control on corporate value using either dual class or single class closely-held ownership structure. The empirical results show that after controlling for size, financial leverage, percentage of outside directors, and industry differences, dual class companies sell at a significant discount compared to closely-held single class companies. Consistent with Claessens et al. (2002), dual class structure in Canada lessens corporate value because it lowers shareholder and manager alignment and increases agency problems. We also find that pyramid structure has a negative impact on value in the case of single class closely-held companies.

Keywords: Dual Class, Concentrated Control

JEL Classification: G32, G34

Suggested Citation

Amoako-Adu, Ben and Smith, Brian Frederick and Kalimipalli, Madhu, Concentrated Control: A Comparative Analysis of Single and Dual Class Structures on Corporate Value (November 2006). Available at SSRN: https://ssrn.com/abstract=945550 or http://dx.doi.org/10.2139/ssrn.945550

Ben Amoako-Adu (Contact Author)

Wilfrid Laurier University - School of Business & Economics ( email )

Financial Services Research Centre
Waterloo, Ontario N2L 3C5
CANADA
519-884-1970 (Phone)
519-884-0201 (Fax)

Brian Frederick Smith

Wilfrid Laurier University ( email )

75 University Ave W
Waterloo, Ontario N2L 3C5
Canada

Madhu Kalimipalli

Lazaridis School of Business and Economics, Wilfrid Laurier University ( email )

Waterloo, Ontario N2L 3C5
Canada
519-884-0710 (Phone)

HOME PAGE: http://www.madhukalimipalli.com/

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