Corporate governance and firm value at dual class firms

Abstract

This study explores whether corporate governance at dual class firms differs from that of their single class counterparts and whether firm value at dual class firms is associated with governance. Employing a sample of 1309 U.S. dual class firm-year observations for the period 1996–2006, we show evidence that dual class firms are more likely to employ more shareholder rights provisions while exhibiting lower board and board committee independence than single class firms. The results also show that shareholder rights increase while board provisions decrease in wedge at dual class firms. Further findings underscore that firm value at dual class firms decreases in wedge, and increases in shareholder rights and in board-related provisions, particularly in director independence. While strong board-related governance at dual class firms is significantly positively related to firm value in a multivariate setting, shareholder rights are significantly associated with firm value only in instances of the weakest board provisions. Following unification, firms employ more antitakeover provisions while strengthening their board and board committee independence.