Voluntary Disclosure and Ownership Structure: An Analysis of Dual Class Firms

Abstract

This study focuses on the association of voluntary compensation disclosure and ownership structure. It provides evidence that the detachment of control and cash flow rights in dual class share firms is associated with lower levels of compensation disclosure. This association is incremental to the level of managerial ownership and family ownership. The study attributes these disclosure results to the political costs of high compensation levels in dual class share firms. Consistent with this explanation, the study finds that managers in dual class share firms earn higher compensation relative to their single class counterparts. To examine the research question, the study develops a new compensation disclosure index that has been unexplored in prior academic literature. An analysis within dual class firms reveals that compensation disclosure is decreasing in managers’ voting control but increasing in their cash flow rights. This is consistent with a political cost explanation.