Disproportional Ownership Structures and R & D Investment: an Investor Protection Perspective

Abstract

As two main types of disproportional ownership, dual-class equity structures and stock pyramids are widely adopted in practice to endow shareholders with extra voting rights. However, comparative research based on these two forms of ownership structures is rare. Using panel data consist of dual-class firms and pyramidal firms during 2010-2018, this paper examines the effect of disproportional ownership structures on firm’s R & D investment. We find that compared with stock pyramids, dual-class structures are more conducive to the corporate R & D investment; however, large ownership-control rights divergence of the dual-class equity structures has a negative moderating effect on the relationship between dual-class equity structures and R & D investment of the firm. As an essential component of investor protection, equity balance exerts a three-way interaction effect to further weaken the moderating effect of ownership-control rights diver8gence in dual-class equity structures. This paper not only confirmed the positive influence of dual-class equity structures on the firm’s R & D investment, but also provided evidence for the mechanism of the combined “contact perspective” and “legal perspective” in investor protection literature.