Seasoned Equity Offerings by Dual-Class Firms

Abstract

We compare shareholder wealth effects of Seasoned Equity Offerings (SEOs) conducted by dual and single-class firms between 1996 and 2007. While there is no difference in pre-issue stock performance or the initial market reaction to the SEO announcements, dual-class issuers significantly underperform single-class issuers in the post-issue years. The mean abnormal three-year underperformance of dual-class firms relative to single-class is a significant 13.81%, and is robust to alternative abnormal stock return methodologies. We also find dual-class issuers invest significantly less in capital expenditures and R&D over the post-issue period. In addition, higher levels of post-issue capital expenditures are associated with greater relative stock underperformance for dual-class issuers. Overall, these findings are inconsistent with dual-class SEOs increasing long-term shareholder wealth.