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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Main Authors: LIANG, Hao, PARK, Junho, ZHANG, Wei
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Language:English
Published: Institutional Knowledge at Singapore Management University 2022
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Online Access: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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spelling 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
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic dual-class shares
sunset provisions
entrenchment
anti-takeover provisions
Finance and Financial Management
Operations and Supply Chain Management
spellingShingle 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
description 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.
format text
author LIANG, Hao
PARK, Junho
ZHANG, Wei
author_facet LIANG, Hao
PARK, Junho
ZHANG, Wei
author_sort 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
title_fullStr Riding off into the sunset: Dual-class structure in the age of unicorns going public
title_full_unstemmed Riding off into the sunset: Dual-class structure in the age of unicorns going public
title_sort riding off into the sunset: dual-class structure in the age of unicorns going public
publisher Institutional Knowledge at Singapore Management University
publishDate 2022
url 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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