Governance Complexities in Firms
with Dual Class Shares

Anand, Anita

doi:10.1561/109.00000015

Cited by 8 publications

(3 citation statements)

References 3 publications

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“…Dual-class capitalizations by large, well-established firms are very common in Canada, where there are less legal restrictions on their listing than in other developed economies (Amoako-Adu and Smith, 2001). Nevertheless, despite being complex in nature and raising many governance concerns, dualclass share structures become increasingly popular in many, more or less advanced, markets across the globe (Anand, 2018).…”

Section: Nature Of Trading Restrictionsmentioning

confidence: 99%

“…In the same vein, the merits of dual-class share structures are highly debated in the academic literature (Anand, 2018). On the one hand, these structures often lead to inefficient managerial decision-making, financial underperformance of the firm, and substantial disagreements between controlling owners holding smaller equity positions and outside investors that can only be settled in court (Amoako-Adu and Smith, 2001;Gompers et al, 2010).…”

Section: Governance In Restricted Share Settingsmentioning

confidence: 99%

“…Due to the prevalence of dual-class firms in Canada, some researchers argue in favor of regulatory reforms that would address the governance weaknesses in these firms. Thus, Anand (2018) proposes the mandatory adoption of a sunset provision that would limit the duration of the dual-class structure in a company (through an automatic conversion of superior shares into inferior ones upon the occurrence of a specific event) and the compulsory separation and disclosure of the votes of controlling and subordinate shareholders. Similar legal recommendations are advanced by US scholars to further reconcile founder autonomy with investor protections (Govindarajan and Srivastava, 2018).…”

Section: Governance In Restricted Share Settingsmentioning

confidence: 99%

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Informational efficiency and governance in restricted share settings: boosting family business leaders' financing decisions

Dupuis

Bodolica

Spraggon

2021

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PurposeVolume-based liquidity ratios suffer from potential measurement bias due to share restriction and may misrepresent actual liquidity. To address this issue, the authors develop two modified metrics, the free-float liquidity and the alternative free-float illiquidity ratios. These measures are well suited to estimate liquidity in the presence of trading constraints, as can be found in closely held/state-owned entities, IPOs/SEOs with lockup restrictions, dual-class share structures and family-owned businesses.Design/methodology/approachThe authors modify the turnover illiquidity ratio, where the number of outstanding shares is scaled by the public free float, and use natural log transformation to normalize free-float liquidity. Our dataset is composed of daily observations for US stocks included in the S&P 500 index over the 2015–2018 period. To test the validity of free-float (il)liquidity ratios, the authors perform a correlation analysis for various liquidity metrics. To examine their empirical efficiency, the authors employ pooled OLS regression models for family firms as a subsample of liquidity-constrained entities, relying on five different identifiers of family-owned businesses.FindingsThe authors’ empirical testing indicates that the proposed free-float (il)liquidity ratios compare favorably with other volume-based methods, such as Amihud's ratio, liquidity ratio and turnover ratio. For the subsample of family organizations as a restricted-share setting, the authors report significant coefficients for our free-float measures across all the family firm identifiers used. In particular, as free-float decreases with progressive family influence, the advanced ratios capture an increase (decrease) in perceived liquidity (illiquidity) that is absent in the other benchmarks.Originality/valueThis study allows the authors to inform the ongoing debate on the management and governance of publicly listed companies with various impediments to trade. Traditional measures understate illiquidity (overstate liquidity) as the fraction of free trading shares is limited by design or circumstances. The authors’ proposed free-float metrics offer informational gains for family leaders to aid in their financing decisions and for non-family outsiders to guide their investment choice. As a constrained free float inhibits price discovery processes, the authors discuss how restricted stock issuers may alleviate the attendant negative effects on governance and information opacity.

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Section: Nature Of Trading Restrictionsmentioning

confidence: 99%