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Dual-class versus single-class firms: information asymmetry

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  • Lucy Lim

    (Howard University)

Abstract

I examine information asymmetry in dual-class firms in general and when they need (do not need) additional external capital. In general the results show that dual-class firms have higher information asymmetry than single-class firms. When dual-class firms need additional external financing, the gap in information asymmetry between dual-class firms and single class firms is narrower. I find that as the need of additional external capital increases, the difference in information asymmetry between dual-class and single-class firms decreases (consistent with increased disclosures). It decreases, up to a point that there is no difference in information asymmetry with single-class firms that also needs additional external capital. When using adverse selection component of bid-ask spread, the paper finds that as the need of external financing gets high, dual-class firms show lower information asymmetry 1 year before they need additional external capital.

Suggested Citation

  • Lucy Lim, 2016. "Dual-class versus single-class firms: information asymmetry," Review of Quantitative Finance and Accounting, Springer, vol. 46(4), pages 763-791, May.
    • Handle: RePEc:kap:rqfnac:v:46:y:2016:i:4:d:10.1007_s11156-014-0485-x
    DOI: 10.1007/s11156-014-0485-x
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    More about this item

    Keywords

    Bid-ask spreads; Forecast error; Forecast dispersion; Dual-class firms; Information asymmetry; External capital;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation

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