RFS Advance Access published online on May 2, 2009
Review of Financial Studies, doi:10.1093/rfs/hhp024
Extreme Governance: An Analysis of Dual-Class Firms in the United States
Harvard Business School, Harvard University, and NBER
Department of Finance, Stanford Graduate School of Business, Stanford University
Yale School of Management, Yale University, and NBER
Send correspondence to Andrew Metrick, Yale School of Management, 135 Prospect Street, New Haven, CT 06520; telephone: (203) 432-3069, fax: 203-432-8931. E-mail: metrick{at}yale.edu.
JEL Classification: G32, G34
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Abstract |
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We construct a comprehensive list of dual-class firms in the United States and use this list to analyze the relationship between insider ownership and firm value. Our data have two useful features. First, since dual-class stock separates cash-flow rights from voting rights, we can separately identify the impact of each. Second, we address endogeneity concerns by using exogenous predictors of dual-class status as instruments. In single-stage regressions, we find strong evidence that firm value is increasing in insiders’ cash-flow rights and decreasing in insider voting rights. In instrumental variable regressions, the point estimates are similar but the significance levels are lower.
Stacy Brenner, Isaac Dinner, Ignacio de la Huerta, Osborne Jackson, Ashton Hawk, Jason O’Connor, Colleen Pontious, and Rebecca Sykes provided excellent research assistance. We thank Sanjai Bhagat, Tarun Chordia, John Coates, John Core, Rudi Fahlenbrach, Martin Lipton, Brett McDonnell, David Scharfstein, Henri Servaes, Jay Shanken, Andrei Shleifer, Ravi Singh, an anonymous referee, and seminar participants at Emory, Fordham, Harvard, North Carolina, Ohio State, Penn, Texas, Vanderbilt, the 2004 AEA meetings, the 2005 AFA meetings, and the 2006 American Law and Economics Meetings for helpful comments. Gompers acknowledges the support of the Division of Research at Harvard Business School. Ishii acknowledges support from an NSF Graduate Research Fellowship. Metrick acknowledges the support of the Morgan Stanley Fellowship of the Rodney L. White Center at the Wharton School. Gompers and Metrick acknowledge the support of National Science Foundation grant SES 0136791. All data for this article are available from the authors. The list of dual-class firms in the United States can be downloaded from http://www.som.yale.edu/faculty/am859/Webpages/Data.html.