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Dual Class Discount, and the Channels of Extraction of Private Benefits

Advances in Financial Economics

ISBN: 978-1-78350-120-5

Publication date: 11 August 2014



The chapter investigates three channels through which private benefits are hypothesized to be extracted in dual class companies: excess executive compensation, excess capital expenditures and excess cash holdings.


With a propensity score matched sample of S&P 1500 dual class and single class companies with concentrated control, the chapter analyzes the relationship between the valuation discount of dual class companies and measures of excess executive compensation, excess capital expenditure and excess cash holdings.


Executives in dual class firms earn greater compensation relative to their counterparts in single class firms. This excess compensation is more pronounced when the executive is a family member. The value of dual class shares is discounted most when cash holdings and executive compensation of dual class are excessive. Excess compensation is highest for executives who are family members of dual class companies. The dual class discount is not related to excess capital expenditures.


The research shows that the discount in the value of dual class shares in relation to the value of closely controlled single class company shares is directly related to the channels through which controlling shareholder-managers can extract private benefits.




Amoako-Adu and Smith acknowledge the funding support for this research by The Economical Insurance Group and the Social Sciences Humanities Research Council of Canada. An earlier draft of the chapter was presented at the 2010 Eastern Finance Association Meetings, the 2012 Midwest Finance Association Meeting and the 2012 Financial Management Association International Meeting.


Amoako-Adu, B., Baulkaran, V. and Smith, B.F. (2014), "Dual Class Discount, and the Channels of Extraction of Private Benefits", Advances in Financial Economics (Advances in Financial Economics, Vol. 16), Emerald Group Publishing Limited, Leeds, pp. 165-218.



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