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Abstract

In the 1980s, stock exchanges and eventually the SEC took actions that affected the eligibility of listed firms to adopt dual-class shares with differential voting rights. In contrast to previous work, we use methodology relying on market-wide reactions to multiple regulatory events to show that risk-adjusted stock returns increase (decrease) in reaction to events that decrease (increase) the probability of firms' ability to adopt dual-class shares. This short-run reaction varies systematically across firms, suggesting that investors view dual-class shares positively in research-intensive and well-governed firms. In the long run, banning dual-class shares leads to lower research output, firm value, and profitability. Overall, our results suggest that dual-class shares increase valuations and facilitate innovation.

Citation

Lel, Ugur; Netter, Jeffry M.; Poulsen, Annette B.; Qin, Zhongling (2021).
Dual-Class Shares and Firm Valuation: Market-Wide Evidence from Regulatory Events.
ECGI Finance Working Paper No. 807/2021.
European Corporate Governance Institute. https://doi.org/10.67929/ecgi-fin-807-2021

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