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Article
Publication date: 21 August 2019

Ashrafee Tanvir Hossain and Lawrence Kryzanowski

The purpose of this paper is to critically review the relevant literature from the perspective of dual-class firms and to provide suggestions for future research on dual…

Abstract

Purpose

The purpose of this paper is to critically review the relevant literature from the perspective of dual-class firms and to provide suggestions for future research on dual-class firms, and on methodological issues that should be addressed in such research.

Design/methodology/approach

The research design consists of three parts: an introduction to dual-class firms (motivations for; firm life cycle effects) in Part 1; concerns with firms with such share class structures (valuation; governance; accounting and corporate policy issues) in Part 2; and some solutions or ways to accommodate the trade-offs involved with such share class structures (retention arguments; index/exchange exclusions; contractual provisions; external monitoring) in Part 3. Throughout the paper, the authors provide some critiques of existing studies, particularly from a methodological perspective, the authors’ opinion on the state of the literature and suggestions for future areas of research.

Findings

While motivations for the use of dual-class voting structures include flexibility so that the idiosyncratic vision of their entrepreneurs/founders can be pursued in a less encumbered fashion, greater innovation and long-term managerial orientation, there are many possible costs (e.g. underinvestment and managerial entrenchment) to this ownership structure. Nevertheless, the authors believe that such firms should have provisions in place that facilitate a reversion to a single-class structure longer term when such firms have become more mature, less dependent on the idiosyncratic vision of the entrepreneurs/founders at IPO and have attracted more managerial talent.

Originality/value

The literature arrives at no consensus on the benefits/drawbacks of this type of share ownership structure which means that many topics of research require further academic examination. The authors provide suggested directions for such future enquiries.

Details

Managerial Finance, vol. 45 no. 9
Type: Research Article
ISSN: 0307-4358

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Book part
Publication date: 3 August 2015

Jayme S. Lemke

Recognizing heterogeneity of legal/social status, historical experience, and the resulting variation in the constraints faced by different groups can be a valuable…

Abstract

Recognizing heterogeneity of legal/social status, historical experience, and the resulting variation in the constraints faced by different groups can be a valuable complement to forms of heterogeneity already recognized by Austrian economists. This is particularly true for empirical analyses of caste-based societies, women’s history, and the experiences of other currently or historically persecuted minority populations. When (1) political institutions and/or other emergent social structures establish rules that apply to some individuals but not others, (2) these non-general rules are constructed in such a way that individuals cannot easily move in and out of established groups, and (3) some of the groups created by this process hold authority over others, class structures are created that can be understood without violating methodological individualism and other key tenets of Austrian economics. Like other heterogeneities that have now become incorporated into mainstream economic thought, the development of an Austrian theory of class could advance both the Austrian tradition and economic science in general.

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New Thinking in Austrian Political Economy
Type: Book
ISBN: 978-1-78560-137-8

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Article
Publication date: 10 April 2017

Justin S. Cox

The purpose of this paper is to explain whether the level of managerial quality and growth opportunities influences the operating and return performance between single and…

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Abstract

Purpose

The purpose of this paper is to explain whether the level of managerial quality and growth opportunities influences the operating and return performance between single and dual class IPOs.

Design/methodology/approach

The sample includes 281 initial public offerings under a dual class share structure. This paper measures managerial ability using a score method design produced by (Demerjian et al., 2012). This paper follows (Chemmanur et al., 2011) in measuring post-IPO operating performance between dual and single-class firms. This paper follows Lyon et al. (1999) and Chemmanur et al. (2011) in measuring long-term post-IPO buy-and-hold return performance. This paper employs two measures of growth/investment using Tobin’s q and expenditures such as capital, research and development, and selling, general and administrative scaled to total assets (Daniel et al., 2016).

Findings

Firms with high-quality managers experience more underpricing than low-quality managers. Likewise, dual class firms of all manager and growth types hold less cash and leverage. Using Tobin’s q as a proxy for growth, dual class firms experience higher post-IPO operating performance regardless of managerial quality. Furthermore, the findings indicate minimal evidence that dual class firms underperform single-class IPOs, lending minimal support for the managerial entrenchment hypothesis.

Originality/value

This paper is the first to partition dual and single-class IPOs based on managerial quality and growth opportunities to test long-term differences in operating and return performance.

Details

Managerial Finance, vol. 43 no. 4
Type: Research Article
ISSN: 0307-4358

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Book part
Publication date: 16 October 2020

Charles P. Cullinan, Lois B. Mahoney and Linda Thorne

The authors’ examination of corporate social responsibility (CSR) scores in dual-class firms provides a window on firms’ CSR performance when insulated from external…

Abstract

The authors’ examination of corporate social responsibility (CSR) scores in dual-class firms provides a window on firms’ CSR performance when insulated from external pressure. Dual-class ownership confers greater voting rights on a superior class of shares held by insiders; consequently, managers of dual-class firms are insulated from external pressure from inferior class shareholders and, potentially, from society. The authors compare CSR scores in dual- and single-class firms and investigate the association between CSR scores and cash flow rights in dual-class firms. This analysis reveals that dual-class firms have lower CSR scores than their single-class counterparts and that CSR scores in dual-class firms are positively related to the relative cost of CSR borne by the superior class of shares. The findings suggest that external accountability encourages CSR performance, and CSR performance is higher when the superior class bears a smaller portion of the cost of CSR activities. It follows that the analysis suggests the importance of governance structures for encouraging CSR, and the dampening impact of cost to CSR performance.

Details

Research on Professional Responsibility and Ethics in Accounting
Type: Book
ISBN: 978-1-83867-669-8

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Book part
Publication date: 4 December 2009

Clayton D. Peoples

Power structure research examines core issues in the discipline of sociology; yet this important area of study is declining because of the conceptual, theoretical, and…

Abstract

Power structure research examines core issues in the discipline of sociology; yet this important area of study is declining because of the conceptual, theoretical, and methodological problems. In this paper, I address each of these problems and proposing solutions. I then test the validity of my proposed solutions by conducting empirical analyses examining how big business and labor political action committee (PAC) contributors influence U.S. House decision making. My findings vividly show significant big business influence on House decision making, but negligible labor influence. These findings carry considerable implications for power structure theorizing and research, and provide a solid foundation for future power structure work.

Details

Political Power and Social Theory
Type: Book
ISBN: 978-1-84950-667-0

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Article
Publication date: 6 November 2018

Ji Li and Yuhchang Hwang

The purpose of this paper is to provide new evidence on the choice of performance measures used in dual-class firms to incentivize CEOs.

Abstract

Purpose

The purpose of this paper is to provide new evidence on the choice of performance measures used in dual-class firms to incentivize CEOs.

Design/methodology/approach

This paper uses coarsened exact matching and propensity score matching to match the dual-class firm sample with a control group of single-class firms. This study uses matching estimators to provide an analysis of how a dual-class structure affects the design of performance measures in performance-based stock awards. In addition, regression models are used to investigate the effect of a dual-class structure on performance measure choices.

Findings

This paper finds that market-based metrics are less likely to be used by dual-class firms relative to single-class firms. In addition, peer-based measures are much less common for dual-class than single-class firms. This study also finds that the length of the CEO’s performance evaluation period does not differ between dual-class and single-class firms.

Research limitations/implications

This paper attempts to investigate the choice of performance measures to find out the extent to which the board of directors focuses CEO efforts on firms’ long-term versus short-term objectives.

Practical implications

The findings reveal the relationships between the dual-class stock structure and the contractual features of CEO performance-based stock awards, provide empirical evidence for the company’s compensation committee and provide implications for the evolving practices of performance measures regarding CEO stock compensation. The findings are also useful to regulators, compensation consultants and firms pursuing efficient design of executive compensation.

Originality/value

This paper is among the first to study the determinants of compensation contracts. Second, prior literature seldom controls for CEO stock ownership, but this study matches dual-class firms to a control group of single-class firms that are similar in terms of CEO stock ownership and other important firm characteristics. Finally, these findings suggest that dual-class firms shield their executives from short-term market pressures and design stock compensation contracts that deemphasize volatile stock prices.

Details

Review of Accounting and Finance, vol. 17 no. 4
Type: Research Article
ISSN: 1475-7702

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Article
Publication date: 10 April 2017

Jagjit S. Saini, Onur Arugaslan and James DeMello

The purpose of this paper is to examine what is weighted more by the investors when valuing a dual-class firm’s stock – greater agency costs or better accrual quality of…

Abstract

Purpose

The purpose of this paper is to examine what is weighted more by the investors when valuing a dual-class firm’s stock – greater agency costs or better accrual quality of the dual-class firm in contrast to the single-class firm.

Design/methodology/approach

Using the financial data of firms issuing multiple classes of stock (hereafter dual-class firms) and firms issuing single class of stock (hereafter single-class firms), the authors measure the effect of firm’s ownership structure (dual class versus single class) on the earnings response coefficients (ERCs) of prior, current and future period earnings.

Findings

The authors find that investors care more about agency costs than the quality of accruals in evaluating the earnings of dual-class firms. Specifically, the authors find that current annual returns of the firm are negatively associated with dual-class ownership structure and that earnings informativeness and predictability are decreasing in dual-class ownership of the firm as reflected in decreasing ERCs.

Originality/value

This study adds to prior literature on dual-class ownership which reports greater agency costs and better accrual quality at dual-class firms in contrast to single-class firms. This study contributes to the literature on earnings informativeness and predictability by evaluating the effect of ownership structure on the ERCs of the firm. Investors should be careful when valuing a dual-class firm and should consider agency costs in addition to accrual quality of reported earnings at such firms.

Details

Journal of Financial Reporting and Accounting, vol. 15 no. 1
Type: Research Article
ISSN: 1985-2517

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Book part
Publication date: 30 September 2020

Zophia Edwards

In recent decades, it has become clear that the major economic, political, and social problems in the world require contemporary development research to examine…

Abstract

In recent decades, it has become clear that the major economic, political, and social problems in the world require contemporary development research to examine intersections of race and class in the global economy. Theorists in the Black Radical Tradition (BRT) were the first to develop and advance a powerful research agenda that integrated race–class analyses of capitalist development. However, over time, progressive waves of research streams in development studies have successively stripped these concepts from their analyses. Post-1950s, class analyses of development overlapped with some important features of the BRT, but removed race. Post-1990s, ethnicity-based analyses of development excised both race and class. In this chapter, I discuss what we learn about capitalist development using the integrated race–class analyses of the BRT, and how jettisoning these concepts weakens our understanding of the political economy of development. To remedy our current knowledge gaps, I call for applying insights of the BRT to our analyses of the development trajectories of nations.

Details

Rethinking Class and Social Difference
Type: Book
ISBN: 978-1-83982-020-5

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Article
Publication date: 1 September 1999

Kenneth Prandy

Reverses the traditional approach of defining classes or status groups before investigating patterns of social interaction by using patterns of interaction between more…

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2033

Abstract

Reverses the traditional approach of defining classes or status groups before investigating patterns of social interaction by using patterns of interaction between more basic units such as occupational groups to determine the nature of stratification order. Outlines the theoretical basis and compares this to other methods before giving examples of applications.

Details

International Journal of Sociology and Social Policy, vol. 19 no. 9/10/11
Type: Research Article
ISSN: 0144-333X

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Article
Publication date: 19 June 2019

Olesya Lobanova, Abhijit Barua, Suchismita Mishra and Arun J. Prakash

The purpose of this study is to explain the poor informativeness of earnings in dual-class firms by examining the quality of earnings and the information environment.

Abstract

Purpose

The purpose of this study is to explain the poor informativeness of earnings in dual-class firms by examining the quality of earnings and the information environment.

Design/methodology/approach

The earnings informativeness, earnings quality and information environment of dual-class firms are compared with a matched sample of single-class firms. The authors have performed the returns-earnings association tests, examine the quality of earnings by using proxies for discretionary accruals, and examine the information environment by employing four empirical constructs: the analyst forecast dispersion, absolute forecast errors, Amihud’s (2002) illiquidity measure, and the bid-ask spread.

Findings

The results show that the quality of earnings is better while the quality of the information environment is worse in dual-class firms compared to single-class firms. Overall, the results suggest that an inferior information environment is a plausible explanation for the low informativeness of dual-class firms’ earnings.

Research limitations/implications

The results provide empirical support for Dechow et al. (2010) that the use of the earnings-returns association measure to draw conclusions about the quality of earnings is not appropriate in the presence of a poor information environment.

Originality/value

This is the first study to empirically show that low earnings informativeness in dual-class firms can be explained by the inferior quality of the information environment.

Details

Review of Accounting and Finance, vol. 18 no. 3
Type: Research Article
ISSN: 1475-7702

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