Riding off into the sunset: Dual-class structure in the age of unicorns going public
The increasing adoption of dual-class shares (DCS)—an ownership structure that gives corporate insiders greater voting power than other shareholders—among newly listed companies has raisedsignificant governance concerns. We investigate the decision to adopt the DCS structure and itsvalue implication...
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sg-smu-ink.lkcsb_research-81472023-01-20T02:55:46Z Riding off into the sunset: Dual-class structure in the age of unicorns going public LIANG, Hao PARK, Junho ZHANG, Wei The increasing adoption of dual-class shares (DCS)—an ownership structure that gives corporate insiders greater voting power than other shareholders—among newly listed companies has raisedsignificant governance concerns. We investigate the decision to adopt the DCS structure and itsvalue implications in the recent U.S. IPOs. Using founder cultural traits and Silicon Valley lawfirms as instrumental variables, we find significant post-IPO outperformance by firms adopting DCSwith a sunset clause, especially incapacity-based sunset which stipulates that the DCS will ceaseafter founders’ death, incapacitation or departure, compared to non-DCS firms and DCS firms without sunsets. This outperformance is more pronounced for high-tech firms, after Google’s IPO, and for firms that rely more on R&D. DCS firms with sunset provisions have greater operating efficiency, marginal value of cash, and more innovation outputs but lower quality ones, which is in line with the incentive schemes provided to their executives. 2022-10-01T07:00:00Z text application/pdf https://ink.library.smu.edu.sg/lkcsb_research/7148 info:doi/10.2139/ssrn.4242984 https://ink.library.smu.edu.sg/context/lkcsb_research/article/8147/viewcontent/SSRN_id4242984.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection Lee Kong Chian School Of Business eng Institutional Knowledge at Singapore Management University dual-class shares sunset provisions entrenchment anti-takeover provisions Finance and Financial Management Operations and Supply Chain Management |
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dual-class shares sunset provisions entrenchment anti-takeover provisions Finance and Financial Management Operations and Supply Chain Management LIANG, Hao PARK, Junho ZHANG, Wei Riding off into the sunset: Dual-class structure in the age of unicorns going public |
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The increasing adoption of dual-class shares (DCS)—an ownership structure that gives corporate insiders greater voting power than other shareholders—among newly listed companies has raisedsignificant governance concerns. We investigate the decision to adopt the DCS structure and itsvalue implications in the recent U.S. IPOs. Using founder cultural traits and Silicon Valley lawfirms as instrumental variables, we find significant post-IPO outperformance by firms adopting DCSwith a sunset clause, especially incapacity-based sunset which stipulates that the DCS will ceaseafter founders’ death, incapacitation or departure, compared to non-DCS firms and DCS firms without sunsets. This outperformance is more pronounced for high-tech firms, after Google’s IPO, and for firms that rely more on R&D. DCS firms with sunset provisions have greater operating efficiency, marginal value of cash, and more innovation outputs but lower quality ones, which is in line with the incentive schemes provided to their executives. |
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LIANG, Hao PARK, Junho ZHANG, Wei |
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LIANG, Hao PARK, Junho ZHANG, Wei |
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LIANG, Hao |
title |
Riding off into the sunset: Dual-class structure in the age of unicorns going public |
title_short |
Riding off into the sunset: Dual-class structure in the age of unicorns going public |
title_full |
Riding off into the sunset: Dual-class structure in the age of unicorns going public |
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Riding off into the sunset: Dual-class structure in the age of unicorns going public |
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Riding off into the sunset: Dual-class structure in the age of unicorns going public |
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riding off into the sunset: dual-class structure in the age of unicorns going public |
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Institutional Knowledge at Singapore Management University |
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2022 |
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https://ink.library.smu.edu.sg/lkcsb_research/7148 https://ink.library.smu.edu.sg/context/lkcsb_research/article/8147/viewcontent/SSRN_id4242984.pdf |
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