IDEAS home Printed from https://ideas.repec.org/a/now/jnllfa/108.00000059.html
   My bibliography  Save this article

The Quality of Earnings Information in Dual-Class Firms: Persistence and Predictability

Author

Listed:
  • Rimona Palas
  • Dov Solomon

Abstract

A dual-class firm structure, in which one class of shares confers more votes per share than the other, creates a gap between voting rights and cash flow rights. In this paper, we examine the quality of the financial reports of dual- versus single-class firms publicly traded in the U.S. over the 2012–2017 period, as measured by persistence and predictive ability of earnings and cash flows. The results are based on comprehensive information from financial statements analyzed using across-sample and within-sample tests. An additional external indicator of financial restatement filings is also used to support the results. The findings demonstrate that the quality of financial reports is higher for dual-class firms than for single-class firms and increases over time. This suggests that the freedom from market pressures is stronger than agency costs, encouraging founders to provide investors with higher-quality information in exchange for superior voting rights. The results uncover important and counterintuitive evidence about the existence of a tradeoff between the dilution of voting rights and enhancement of the credibility of information provided to investors.

Suggested Citation

  • Rimona Palas & Dov Solomon, 2022. "The Quality of Earnings Information in Dual-Class Firms: Persistence and Predictability," Journal of Law, Finance, and Accounting, now publishers, vol. 7(1), pages 127-164, April.
    • Handle: RePEc:now:jnllfa:108.00000059
    DOI: 10.1561/108.00000059
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1561/108.00000059
    Download Restriction: no
    File URL: https://libkey.io/10.1561/108.00000059?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gafni, Dalit & Palas, Rimona & Baum, Ido & Solomon, Dov, 2024. "ESG regulation and financial reporting quality: Friends or foes?," Finance Research Letters, Elsevier, vol. 61(C).
    2. Palas, Rimona & Solomon, Dov & Gafni, Dalit & Baum, Ido, 2023. "Does wedge size matter? Financial reporting quality and effective regulation of dual-class firms," Finance Research Letters, Elsevier, vol. 54(C).

    More about this item

    Keywords

    Dual-class; earnings quality; financial reports; earnings persistence; earnings prediction; cash flow prediction; restatements; agency problems; disclosure; corporate governance;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:now:jnllfa:108.00000059. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Lucy Wiseman (email available below). General contact details of provider: http://www.nowpublishers.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.