Dual Class Stock Companies: Global Experience and Russian Practice

Companies with complex equity structures formed by issuing shares of different types are a common phenomenon in developed and developing economies, including Russia. However, the causes and consequences of companies choosing such equity structures are not well understood. In particular, neither theory nor empirical studies give a clear answer to the question of the impact of such equity structures on companies' behavior and performance. This article has two goals: first, to characterize the segment of Russian public companies with dual-class stock, including the question of their genesis, and second, to assess the impact of complex equity structures on company performance. The empirical analysis draws on a database of all Russian public companies whose shares were traded on the Moscow Exchange in 2011-20. Using the tools of descriptive, statistical and econometric analysis, we show that the share of dual-class stock companies on the Russian stock market has been high and stable over time, that the overwhelming majority of such companies were created during the processes of privatization and/or reorganization of industries, and that they are characterized by a significant concentration of ownership and control rights in the hands of the largest shareholder. We find that the issue of dual-class stock does not lead to a decline in company performance. However, company performance is inversely related to the wedge between the control and ownership rights of the largest shareholder. Specifically, it is a decreasing function of the shareholder's control rights and an increasing function of her ownership rights, with almost identical absolute values of these effects. The academic significance of this study stems from the confirmation of a negative effect of the control-ownership wedge on company performance in a quasi-experimental setting of the Russian economy, where the majority of dual-class stock companies emerged as a result of government decisions on privatization/reorganization of industries. The results can be used by stock market participants and regulators, which highlights the practical value of this study.