The innovation effect of dual-class shares: New evidence from US firms

Xiaping Cao, Tiecheng Leng, Jeremy Goh and Paul Malatesta ()

Economic Modelling, 2020, vol. 91, issue C, 347-357

Abstract: The proliferation of dual-class structures in the US stock market presents a controversial trend since such shares are traditionally deemed to damage governance quality. We study the relationship between 362 firms with dual-class shares and their innovativeness using patent citations from Google Patents over the 1976 through 2006 period. We find dual-class shares have significant innovation effect in high-tech sectors, hard-to-innovate industries, firms with higher external takeover threat and firms heavily dependent on external equity financing. We also document a positive causality relationship between dual-class structures and the quality of innovation. The channel for this causal relationship is the protection mechanism by which managers can take a long-term view. From a policy perspective, regulators should promote a corporate governance system that protects corporate long-term interest for shareholders.

Keywords: Dual-class; Innovation; Patents; Citations; Corporate governance (search for similar items in EconPapers)
JEL-codes: G30 G34 O31 O32 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:91:y:2020:i:c:p:347-357

DOI: 10.1016/j.econmod.2020.06.017

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