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Growth opportunities, short-term market pressure, and dual-class share structure

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  • Jordan, Bradford D.
  • Kim, Soohyung
  • Liu, Mark H.

Abstract

We test the hypothesis that dual-class shares can help managers focus on the implementation of long-term projects while avoiding short-term market pressure. Consistent with this idea, we find that dual-class firms face lower short-term market pressure (fewer transient or short-term institutional holdings, a lower probability of being taken over, and lower analyst coverage) than propensity-matched single-class firms. Dual-class firms also tend to have more growth opportunities (higher sales growth and R&D intensity). The dual-class share structure increases the market valuation of high growth firms, in contrast to the finding in the literature that dual-class firms trade at lower valuations. To address endogeneity concerns, we evaluate a sample of dual-class share unifications and find that growth opportunities decline while short-term market pressure increases after share unifications.

Suggested Citation

  • Jordan, Bradford D. & Kim, Soohyung & Liu, Mark H., 2016. "Growth opportunities, short-term market pressure, and dual-class share structure," Journal of Corporate Finance, Elsevier, vol. 41(C), pages 304-328.
    • Handle: RePEc:eee:corfin:v:41:y:2016:i:c:p:304-328
    DOI: 10.1016/j.jcorpfin.2016.10.003
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