Institutional Ownership of Dual-Class Companies
Journal of Financial Economic Policy
This study aims to examine institutional ownership of companies that go public with dual-class share structures.
Several recent studies have discussed the potential advantages and disadvantages of the dual-class structure, which allows founders and insiders to maintain control of the firms they created through superior voting rights. Institutional investors oppose the dual-class structure, arguing that inferior voting rights make it difficult to respond to poor governance or performance. Previous research has shown the early value-added to the dual-class firm declines through time. This study examines institutional ownership of dual-class companies through time and compares institutional investments in initial public offerings with perpetual superior-class structures versus those with provisions to sunset those shares to one-share, one-vote structures.
Evidence suggests that institutional investors view perpetual dual-class structures as potentially riskier in terms of poor governance or performance and prefer dual-class companies with sunset provisions.
This study suggests that founders and insiders should consider either the dual-class structure with a sunset provision or if they choose the perpetual dual-class, it should include some type of event-driven safeguards.
Investments, investment decisions, firm management
Burson, Jonathan J. and Jensen, Marlin, "Institutional Ownership of Dual-Class Companies" (2021). Business Administration Faculty Publications. 188.