Dual-class stock structure and firm investment

Hamid Beladi, May Hu, JingJing Yang and Ruicheng Zhu

Finance Research Letters, 2022, vol. 47, issue PA

Abstract: Dual-class stock structure helps insiders gain control through different voting rights, but also exacerbates the principal-agent conflict. The separation of control rights and cash flow rights enhances managerial opportunistic behavior. We find that dual-class stock structure aggravates the over-investment behavior of listed firms. The impact of free cash flow on over-investment is more severe in dual class firms than in single-class firms. Paying cash dividends reduces the effects of dual-class stock structure, and separation of control and cash flow rights on overinvestment. Regulators need to strengthen the supervision to restrict managerial opportunistic behavior in firms with dual-class share structure.

Keywords: China concept stocks; Dual-class share structure; Free cash flow; Cash dividends; Overinvestment (search for similar items in EconPapers)
JEL-codes: G32 G35 G38 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:47:y:2022:i:pa:s154461232200201x

DOI: 10.1016/j.frl.2022.102939

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