Investment efficiency: Dual-class vs. Single-class firms

Xiaoyan Cheng, Heminigild Mpundu and Huishan Wan

Global Finance Journal, 2020, vol. 45, issue C

Abstract: This study examines the effects of a dual-class structure on investment efficiency. Agency theory suggests that a dual-class structure exacerbates agency problems, leading to under- or overinvestment, but another view posits that the dual-class structure insulates managers from the pressure of the marketplace or activist investors seeking short-term profits. We find that dual-class firms invest more efficiently than single-class peers. This effect is more pronounced among firms with less transparent investments such as R&D. Our findings are robust to a propensity score matching approach and a setting where single-class firms recapitalize with dual-class shares. Furthermore, we find that among firms most at risk of overinvestment, dual-class firms have higher future accounting profitability and less volatile future returns.

Keywords: Dual-class; Investment efficiency; Overinvestment; Underinvestment; Agency theory; Stewardship theory (search for similar items in EconPapers)
JEL-codes: G31 M41 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1044028318302631
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:45:y:2020:i:c:s1044028318302631

DOI: 10.1016/j.gfj.2019.100477

Access Statistics for this article

Global Finance Journal is currently edited by Manuchehr Shahrokhi

More articles in Global Finance Journal from Elsevier
Bibliographic data for series maintained by Catherine Liu ().