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Dual‐class share structure and innovation

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  • Lindsay Baran
  • Arno Forst
  • M. Tony Via

Abstract

Using a sample of dual‐class firms matched with single‐class firms possessing similar antitakeover protection, we find a positive association between disproportionate insider control and patent output, quality, creativity, research and development efficiency, and chief executive officer innovative risk taking. We also find, however, that the positive effects of disproportionate control on innovation are concentrated in financially constrained firms and firms in highly competitive industries, and that the positive effects dissipate within 10 years after the initial public offering. Most important, the positive effect of dual‐class structures for innovation is conditional on the presence of innovative insiders in the firm. These findings imply that entrenchment through concentrated control in the hands of uniquely innovative corporate insiders provides a positive environment for innovativeness beyond the entrenchment effects of alternative antitakeover measures.

Suggested Citation

  • Lindsay Baran & Arno Forst & M. Tony Via, 2023. "Dual‐class share structure and innovation," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 46(1), pages 169-202, February.
    • Handle: RePEc:bla:jfnres:v:46:y:2023:i:1:p:169-202
    DOI: 10.1111/jfir.12311
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    References listed on IDEAS

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