The Board of Directors and Dual-Class Recapitalizations

Curtis J. Bacon, Marcia Millon Cornett, Wallace N. Davidson and Iii

Financial Management, 1997, vol. 26, issue 3

Abstract: There are two conflicting hypotheses regarding the effect of dual-class recapitalizations. One holds that the shareholders with voting rights improve the position of all shareholders because of their ability to negotiate a better takeover price. The other contends that the recapitalization can be used by management to entrench themselves in a takeover situation. This study examines the characteristics of the firms that choose dual-class recapitalizations and shows that both types of behavior are evident and that the composition of the board explains which type of behavior a firm is likely to exhibit.

Date: 1997
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