Growth opportunities, short-term market pressure, and dual-class share structure

Bradford Jordan, Soohyung Kim and Mark H. Liu

Journal of Corporate Finance, 2016, vol. 41, issue C, 304-328

Abstract: We test the hypothesis that dual-class shares can help managers focus on the implementation of long-term projects while avoiding short-term market pressure. Consistent with this idea, we find that dual-class firms face lower short-term market pressure (fewer transient or short-term institutional holdings, a lower probability of being taken over, and lower analyst coverage) than propensity-matched single-class firms. Dual-class firms also tend to have more growth opportunities (higher sales growth and R&D intensity). The dual-class share structure increases the market valuation of high growth firms, in contrast to the finding in the literature that dual-class firms trade at lower valuations. To address endogeneity concerns, we evaluate a sample of dual-class share unifications and find that growth opportunities decline while short-term market pressure increases after share unifications.

Keywords: Dual class shares; Voting rights; Cash flow rights; Share unification; Sales growth; R&D expenditure (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:41:y:2016:i:c:p:304-328

DOI: 10.1016/j.jcorpfin.2016.10.003

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