The dual class stock structure in the United States
Howell, Jason Willard
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In the first chapter, I review the history of the dual class structure in the United States and its continued survival amidst changes in the takeover environment. The second chapter reviews the theoretical pros and cons of the dual class structure and also summarizes the extant empirical literature. In the third chapter, I outline the various capitalization and implementation methods used by dual class firms and briefly describe alternative control mechanisms. In the fourth chapter, I examine the prior methods used to identify dual class firms and point out the sample selection problems with each. In addition, I introduce the largest sample of United States dual class firms, consisting of 1,103 firms and 8,265 firm years over the 20 year period 1988-2007. In the fifth chapter, I examine the firms who voluntarily unify their share classes in order to determine why blockholders willingly give up such large stakes in voting power. I find 70% of unifying firms specifically state "increase liquidity" as a primary reason for unifying their share classes. Also, I find blockholders maintain or slightly increase their voting power prior to the unification, but then dramatically decrease their voting power in the three years after the unification. I find two-thirds of the drop in voting power is attributable to reductions in blockholder holdings rather than share dilutions. In addition, I find over 40% of blockholders completely exit the firm within three years. Based on the empirical evidence, I conclude blockholders are willing to lose signi cant portions of voting power in order to increase their own personal liquidity. In the sixth chapter, I examine the effects of the unification on the 95 unifying firms. I find a positive and significant abnormal return for restricted voting shareholders; however, the superior voting shares reaction is positive and insigni cant. With both classes combined, I find a significant increase of 3.55% in market capitalization during the announcement. After the announcement, I find there is no significant increase in firm value as measured by Tobin's q and no increase in firm operating performance. However, I do find a signi cant increase in leverage, equity issuance, and share liquidity after the unification.