 Dual class IPOs: A theoretical analysisThomas Chemmanur and Yawen Jiao Journal of Banking & Finance, 2012, vol. 36, issue 1, 305-319 Abstract: We consider an incumbent who wishes to sell equity to outsiders at an IPO to implement his firm’s project. He may be talented (lower cost of effort, comparative advantage in project-implementation) or untalented. The project may have high (intrinsically more valuable, but showing less signs of success in the near-term) or low near-term uncertainty. Under a single class share structure, the incumbent has a greater chance of losing control to potential rivals if he undertakes the project with high near-term uncertainty, since outsiders may vote for the rival if they believe the project is not progressing well. A dual class share structure allows the incumbent to have enough votes to prevail against any rival, but may be misused by untalented incumbents to dissipate value. Our results help to explain firms’ choices between dual class and single class IPOs and the post-IPO operating performance of dual class versus single class firms. Keywords: Dual class shares; IPO; Voting structure; Antitakeover provisions (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:36:y:2012:i:1:p:305-319 DOI: 10.1016/j.jbankfin.2011.07.010 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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