Abstract
We test whether agency conflicts generated by the divergence between insider voting rights and cash flow rights (i.e., disproportionate insider control) within dual-class firms reduce the informativeness of stock returns about future earnings. We find that the future earnings response coefficient (FERC), which measures the extent to which current period returns incorporate future earnings news, is decreasing in disproportionate insider control, but the negative relation between disproportionate insider control and the FERC is weaker when institutional ownership is high and when managers provide more disclosure (i.e., greater disaggregation in mandatory reports, voluntary management guidance, and voluntary Form 8-K filings). Collectively, our findings reveal that although agency conflicts inherent in dual-class firms weaken the information environment, bonding and monitoring achieved via more disclosure and a more sophisticated investor base can help to alleviate agency problems arising from disproportionate insider control.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
