Faculty Publications

Investment Efficiency: Dual-Class Vs. Single-Class Firms

Document Type

Article

Keywords

Agency theory, Dual-class, Investment efficiency, Overinvestment, Stewardship theory, Underinvestment

Journal/Book/Conference Title

Global Finance Journal

Volume

45

Abstract

This study examines the effects of a dual-class structure on investment efficiency. Agency theory suggests that a dual-class structure exacerbates agency problems, leading to under- or overinvestment, but another view posits that the dual-class structure insulates managers from the pressure of the marketplace or activist investors seeking short-term profits. We find that dual-class firms invest more efficiently than single-class peers. This effect is more pronounced among firms with less transparent investments such as R&D. Our findings are robust to a propensity score matching approach and a setting where single-class firms recapitalize with dual-class shares. Furthermore, we find that among firms most at risk of overinvestment, dual-class firms have higher future accounting profitability and less volatile future returns.

Original Publication Date

8-1-2020

DOI of published version

10.1016/j.gfj.2019.100477

Repository

UNI ScholarWorks, Rod Library, University of Northern Iowa

Language

en

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