Institutional ownership of dual-class companies

Jonathan J. Burson and Marlin R.H. Jensen

Journal of Financial Economic Policy, 2021, vol. 13, issue 2, 206-222

Abstract: Purpose - This study aims to examine institutional ownership of companies that go public with dual-class share structures. Design/methodology/approach - Several recent studies have discussed the potential advantages and disadvantages of the dual-class structure, which allows founders and insiders to maintain control of the firms they created through superior voting rights. Institutional investors oppose the dual-class structure, arguing that inferior voting rights make it difficult to respond to poor governance or performance. Previous research has shown the early value-added to the dual-class firm declines through time. This study examines institutional ownership of dual-class companies through time and compares institutional investments in initial public offerings with perpetual superior-class structures versus those with provisions to sunset those shares to one-share, one-vote structures. Findings - Evidence suggests that institutional investors view perpetual dual-class structures as potentially riskier in terms of poor governance or performance and prefer dual-class companies with sunset provisions. Originality/value - This study suggests that founders and insiders should consider either the dual-class structure with a sunset provision or if they choose the perpetual dual-class, it should include some type of event-driven safeguards.

Keywords: Investment; Investment decisions; Firm behavior (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfeppp:jfep-04-2020-0061

DOI: 10.1108/JFEP-04-2020-0061

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