Dual-class stocks and the benefits of control

Abstract

Using the hand-collected data of dual-class listed firms in the USA, I find that industry, age and stock-return volatility affect the likelihood that a firm will issue dual-class shares. I explore the implications of these results for our understanding of ownership and control.

Acknowledgement

I thank Ted Fee and Charles Hadlock for valuable comments and suggestions.

Notes

¹ For example, DeAngelo and DeAngelo (1985), Jarrell and Poulsen (1988), Lease et al. (1983, 1984) and Zingales (1994, 1995).

² Our choice of a 5% rule is arbitrary, but probably rather conservative. As we report below, most firms we identify as dual-class by this procedure have a much larger difference in the shares outstanding figure between Compustat and CRSP. Note that if we do miss a few firms, given that they were not flagged by our 5% rule, it is almost surely the case that one of the classes has very few shares outstanding and, therefore, is likely to be economically unimportant.

³ Financial industry includes firms with Standard Industrial Classification (SIC) codes between 6000 and 6300 or SIC between 6700 and 6800. Insurance industry includes firms with SIC code between 6300 and 6500. Real estate industry includes firms with SIC between 6500 and 6600. Utility industry includes firms with SIC between 4900 and 5000.

⁴ Publishing industry includes firms with SIC codes between 2700 and 2800. Broadcasting industry includes firms with SIC codes between 4800 and 4900. Motion picture industry includes firms with SIC between 7800 and 7900.