Abstract
In the 1980s, stock exchanges and eventually, the SEC took actions that affected the eligibility of listed firms to adopt dual classes of shares with differential voting rights. We find that risk-adjusted stock returns increase (decline) significantly on days surrounding such actions that increase the probability of banning (allowing) dual-class shares. The stock market reaction varies across firms systematically suggesting that there is a negative view of dual classes in firms with entrenched managers and is viewed somewhat positively when there is a benefit to protecting management. Dual-class structures do not harm shareholders in very young firms.
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