Dual-class firms, M&amp;As and SOX

Chourou, Lamia; Hossain, Ashrafee Tanvir; Kryzanowski, Lawrence

doi:10.1016/j.qref.2018.08.005

Cited by 5 publications

(6 citation statements)

References 67 publications

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“…They attribute the longer survival of dual-class firms as standalones to lower likelihoods of being delisted due to distress and due to being acquired. Chourou et al (2019) examine a large sample of US M&A deals between 1996 and 2009 for dual-class acquirers and a control sample of single-class acquirers. They attribute the improved short-and long-term performances (including that relative to the control sample) of the dual-class acquirers over time to the passage of the Sarbanes-Oxley Act (SOX).…”

Section: Part 2: Concerns With Dual-class Firms 31 Valuation Concernsmentioning

confidence: 99%

“…However, most of those studies do not address endogeneity concerns nor do they examine matched samples of dual-and single-class firms. Covariate-matched samples are examined by Chourou et al (2019) for dual-class acquirers and by Cremers et al (2018) who document valuation differences between matched samples of dual-and single-class firms that vary over their life cycles. The effectiveness of matching in mitigating the influence of share-structure selection at IPO identified by Cremers et al (2018) is, however, an unresolved issue given that the matching characteristics do not include corporate governance, and are not balanced for IPO size.…”

Section: Part 2: Concerns With Dual-class Firms 31 Valuation Concernsmentioning

confidence: 99%

“…Based on an investigation of US M&A deals undertaken by dual-class firms over the 1996-2009 period, Hossain (2015) finds those firm with better governance performed better in the short and long run. Chourou et al (2019) examine a large sample of US M&A deals between 1996 and 2009 for dual-class acquirers and a control sample of single-class acquirers. They attribute the improved short-and long-term performances (including relative to the control sample) of the dual-class acquirers over time to the passage of the Sarbanes-Oxley Act (SOX) [6].…”

Section: Governance Concernsmentioning

confidence: 99%

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A review of the literature on dual-class firms

Hossain

Kryzanowski

2019

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Purpose The purpose of this paper is to critically review the relevant literature from the perspective of dual-class firms and to provide suggestions for future research on dual-class firms, and on methodological issues that should be addressed in such research. Design/methodology/approach The research design consists of three parts: an introduction to dual-class firms (motivations for; firm life cycle effects) in Part 1; concerns with firms with such share class structures (valuation; governance; accounting and corporate policy issues) in Part 2; and some solutions or ways to accommodate the trade-offs involved with such share class structures (retention arguments; index/exchange exclusions; contractual provisions; external monitoring) in Part 3. Throughout the paper, the authors provide some critiques of existing studies, particularly from a methodological perspective, the authors’ opinion on the state of the literature and suggestions for future areas of research. Findings While motivations for the use of dual-class voting structures include flexibility so that the idiosyncratic vision of their entrepreneurs/founders can be pursued in a less encumbered fashion, greater innovation and long-term managerial orientation, there are many possible costs (e.g. underinvestment and managerial entrenchment) to this ownership structure. Nevertheless, the authors believe that such firms should have provisions in place that facilitate a reversion to a single-class structure longer term when such firms have become more mature, less dependent on the idiosyncratic vision of the entrepreneurs/founders at IPO and have attracted more managerial talent. Originality/value The literature arrives at no consensus on the benefits/drawbacks of this type of share ownership structure which means that many topics of research require further academic examination. The authors provide suggested directions for such future enquiries.

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Section: Part 2: Concerns With Dual-class Firms 31 Valuation Concernsmentioning

confidence: 99%

Section: Part 2: Concerns With Dual-class Firms 31 Valuation Concernsmentioning

confidence: 99%

Section: Governance Concernsmentioning

confidence: 99%

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A review of the literature on dual-class firms

Hossain

Kryzanowski

2019

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“…By providing a shield against short-term market pressures, dual-class shares help firms take on higher-risk, value-increasing projects (Jordan et al , 2018). Short- and long-term value-enhancing benefits are relatively greater for dual- vs single-class acquirers after the passage of the Sarbanes-Oxley Act and its mandated transparency measures (Chourou et al , 2019).…”

Section: Literature Reviewmentioning

confidence: 99%

Share classes, families and asset purchases: Canadian evidence

Guo

Kryzanowski

Nie

2019

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Purpose The purpose of this paper is to test if relative asset purchase values (RAPVs) differ between single- and dual-class purchasers (not) differentiated by family ownership for Canadian firms. Design/methodology/approach The paper uses multivariate regressions and 2SLS estimations of simultaneous equations models with both continuous and dichotomous endogenous variables. Data on share structures and family involvements are hand collected. Findings RAPVs for dual-class purchasers are significantly different (larger) than their single-class counterparts only for family-controlled samples. Larger RAPVs for dual-class purchases are associated with higher degrees of dual-class structures, higher family ownerships and with boards with no more than one family member. Research limitations/implications RAPV is important because of its common use as a primary determinant of the wealth effects of M&As, its use as an exchange-rate proxy in two-stage regressions used to determine the amount of abnormal returns attributable to short selling activity around M&A announcements, and its use as a channel for conveying information about deal complexity, seller’s bargaining power, additional monitoring benefits from purchase and/or greater challenges in incorporating a purchase into existing assets. Larger sample size would facilitate more differentiated examinations. Practical implications Findings imply that dual-class share structures assist family shareholders in elevating their control over corporate decisions involving asset purchases. Social implications This paper furthers the authors’ knowledge about the effects of agency issues on corporate decisions. Originality/value It provides an extension and robustness test of the US evidence for asset purchases by providing evidence for Canada given its greater preponderance of families as the ultimate controlling shareholders, restricted or subordinated voting shares issued and pyramidal structures.

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“…2. Cleary and Hossain (2018) find that recent financial crisis had significance influence on M&A strategic decision making and an investigation from that perspective looking into C-SOX will be interesting. Other papers by these authors that relate to SOX are Bhabra and Hossain (2015, 2017a, 2018a) as well as Chourou et al (2019) that looks into a specific type of firms, i.e. dual-class firms.…”

Section: Notesmentioning

confidence: 99%

An overview of C-SOX and directions for future research

Bhabra

Hossain

Karmakar

2019

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Purpose The purpose of this paper is to examine existing literature, including both academic and practitioner publications, related to Canadian SOX (or C-SOX as it is popularly known). The study discusses the origins of the Act, the underlying motivations for enacting this legislation in Canada and its impact on corporate decisions since its inception in 2003. Design/methodology/approach The principal focus of this literature review is on C-SOX, its inception, reception, compliance and impact in Canada, both from business’ and investors’ critical perspectives. The authors have followed a two-step process to gather all the articles. First, the authors used a keyword search at Google Scholar and ProQuest (e.g. C-SOX, Canadian SOX, Bill 198, etc.) to gather all the articles. Second, the authors retained articles and abstracts that primarily dealt with the background framework and impact of the legislation. It is to be noted that C-SOX was mainly a reactionary legislation following the adoption of US-SOX in 2002. Any discussion of C-SOX is, therefore, incomplete without referencing the literature related to US-SOX. Findings In this review paper the evolution of C-SOX over time in Canada, as well as studies on its impacts and criticisms have been summarized. Based on the extensive research that followed the enactment of US-SOX, the authors also provide suggested research directions related to C-SOX in the future. Research limitations/implications C-SOX has been relatively underexplored and therefore, not much academic work is available presently. This study highlights this gap in the literature with the hope that researchers will devote their energy to understanding the broader ramifications of major legislations such as C-SOX which will potentially also inform future public policy choices. Practical implications This research will help both businesses and investors to understand each other’s perspectives and concerns regarding C-SOX. This paper will also be helpful to policy makers to identify potential areas of improvement in this and future legislative decisions in the future. Originality/value Using a qualitative approach this study combines the development of C-SOX as a legislation in Canada, its overall effectivity/drawbacks and explores the areas it impacts, both positively and negatively, along with criticisms and appreciations.

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Dual-class firms, M&As and SOX

Cited by 5 publications

References 67 publications

A review of the literature on dual-class firms

A review of the literature on dual-class firms

Share classes, families and asset purchases: Canadian evidence

An overview of C-SOX and directions for future research

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