Sticking Around Too Long? Dynamics of the Benefits of Dual-Class Voting
Contrary to the common view that proportional voting rights are always optimal, using a new dataset of corporate voting rights from 1971 to 2015 we find that young dual-class firms trade at a premium and operate at least as efficiently as young single-class firms. As dual-class firms mature, their relative valuation declines, and they become less agile and efficient (in terms of operating margins, innovative output, and labor productivity) compared to their single-class counterparts. In addition, we show that voting premiums increase with firm age, suggesting that private benefits at dual-class firms increase over maturity. Our findings suggest that sunset provisions are a sensible solution to these increasing agency problems over maturity associated with dual-class voting. Using hand-collected data, we find that most dual-class firms adopt provisions that are unlikely to take effect. We propose that provisions conditional on firm age or giving inferior shareholders a periodic right to decide on whether to keep dual-class voting provide effective, time-consistent solutions.