What's in a Vote? The Short- and Long-Run Impact of Dual-Class Equity on IPO Firm Values

Smart, Scott B.; Thirumalai, Ramabhadran S.; Zutter, Chad J.

doi:10.2139/ssrn.784722

Cited by 37 publications

(35 citation statements)

References 9 publications

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“…In a similar fashion, Amoako‐Adu and Smith () illustrate that dual class capitalization is employed as a monitoring mechanism to prevent an undesired takeover. Further, comparing dual and single class IPOs, Smart and Zutter () and Smart, Thirumalai, and Zutter () show that dual class firms reduce the dilution effect, mitigate under‐investment problem, and experience less underpricing than their single class counterparts. Prior literature also demonstrates that dual class ownership structure allows mitigating the agency concerns.…”

Section: Motivation and Hypotheses Developmentmentioning

confidence: 99%

Corporate governance and firm value at dual class firms

Zaiats

2018

Rev Financ Econ

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This study explores whether corporate governance at dual class firms differs from that of their single class counterparts and whether firm value at dual class firms is associated with governance. Employing a sample of 1309 U.S. dual class firmyear observations for the period 1996-2006, we show evidence that dual class firms are more likely to employ more shareholder rights provisions while exhibiting lower board and board committee independence than single class firms. The results also show that shareholder rights increase while board provisions decrease in wedge at dual class firms. Further findings underscore that firm value at dual class firms decreases in wedge, and increases in shareholder rights and in boardrelated provisions, particularly in director independence. While strong boardrelated governance at dual class firms is significantly positively related to firm value in a multivariate setting, shareholder rights are significantly associated with firm value only in instances of the weakest board provisions. Following unification, firms employ more antitakeover provisions while strengthening their board and board committee independence.

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Section: Motivation and Hypotheses Developmentmentioning

confidence: 99%

Corporate governance and firm value at dual class firms

Zaiats

2018

Rev Financ Econ

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“…() and Smart et al . () who find a valuation discount for dual‐class share firms in the USA. Row 2 of Table further shows that operating performance is largely unaffected by the change in the share structure.…”

Section: Regression Resultsmentioning

confidence: 99%

“…Our analysis departs from existing literature in a number of ways. First, whereas past studies have focused on share class unifications in a single country (Amoako‐Adu and Smith, ; Kunz, ; Hauser and Lauterbach, ; Bigelli et al ., ; Dittmann and Ulbricht, ; Smart et al ., ), we use a comprehensive sample of dual‐class firms in seven Western European countries that also covers untraded share classes. Second, unlike studies that have analyzed the relation between the institutional environment and share structure decisions (e.g., Smith and Amoako‐Adu, ; Hoffmann‐Burchardi, ; Hauser and Lauterbach, ), we consider how changes in the institutional environment have affected the attractiveness of dual‐class shares by shaping the value of control available to the controlling shareholders; that is, we investigate voluntary unification decisions.…”

Section: Introductionmentioning

confidence: 99%

Private Benefits of Control and Dual-Class Share Unifications

Maury

Pajuste²

2011

Manage. Decis. Econ.

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This paper examines the decision to unify dual-class shares into a single class. Using a sample of firms from seven European countries, we find that measures of lower private benefits of control available to the controlling shareholders, such as low separation between control and cash flow rights, the presence of financial investors, and cross-listings, increase the likelihood of a unification of share classes. Unifications are also more likely in firms with higher growth opportunities that need external financing. Changes in the institutional environment aimed at limiting the powers of controlling shareholders are positively related to unifications. Increases in firm valuation are found for the year following unifications.

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“…RVS firms are found to use less debt financing to reduce the monitoring power from debt holders (Shyu & Lee, 2009); RVS firms also tend to pay higher nonaudit fees, which causes the market to discount their firm value because of the perceived impairment of auditor independence (Niu, 2008). Smart, Thirumalai, and Zutter (2006) find lower CEO turnover rates in the RVS firms and the discounted share value in the RVS firm's IPOs. They suggest that investors discount restricted voting shares because the superior voting rights held by insiders make it difficult for outsiders to replace incumbents.…”

Section: Literature Reviewmentioning

confidence: 94%

Impact of Restricted Voting Share Structure on Firm Value and Performance

Jog

Zhu

Dutta

2010

Corporate Governance

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Manuscript Type: EmpiricalResearch Question/Issue: In this study, we examine whether firm value, operating performance, and stock performance of the Canadian firms which have issued restricted voting shares (RVS) is different from comparable non-RVS firms. We test two competing hypotheses -the controlling shareholder expropriation hypothesis and the investor protection and substitution hypothesis for the Canadian RVS firms. Research Findings/Insights: Based on a ten-year panel data sample and extensive robustness tests, we do not find that the RVS firms have lower firm value, operating performance, or stock performance than the non-RVS firms in Canada. There is also no evidence of shareholder value expropriation in key financial decisions, such as mergers and acquisitions and dividend payments. The study does not support the controlling shareholder expropriation hypothesis in the Canadian RVS firms. Theoretical/Academic Implications: The RVS structure has been criticized for lack of shareholder rights protection and risk of value entrenchment in the corporate governance literature. However, the existing empirical evidence is mainly based on the firms in the United States. Using a Canadian sample, we show that these results are a function of corporate governance and regulatory environment and the US results cannot be generalized. We find no evidence of shareholder value appropriation nor do we find differential value or performance implications. We believe that a blanket rejection of RVS structure may not be warranted. Practitioner/Policy Implications: Our study concludes that the RVS structure in Canadian firms is influenced by the nature of these firms and the regulatory environment in Canada that protects minority shareholders from wealth appropriation. Our evidence suggests that policy makers and practitioners should evaluate RVS firms on their individual merit and in individual countries -no generalization is warranted.

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What's in a Vote? The Short- and Long-Run Impact of Dual-Class Equity on IPO Firm Values

Cited by 37 publications

References 9 publications

Corporate governance and firm value at dual class firms

Corporate governance and firm value at dual class firms

Private Benefits of Control and Dual-Class Share Unifications

Impact of Restricted Voting Share Structure on Firm Value and Performance

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