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Article
| Review of Financial Studies
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March 2010
Extreme Governance: An Analysis of Dual-Class Firms in the United States
by
Paul A. Gompers, Joy Ishii and Andrew Metrick
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Abstract
We construct a comprehensive list of dual-class firms in the United States and use this list to analyze the relationship between insider ownership and firm value. Our data have two useful features. First, since dual-class stock separates cash-flow rights from voting rights, we can separately identify the impact of each. Second, we address endogeneity concerns by using exogenous predictors of dual-class status as instruments. In single-stage regressions, we find strong evidence that firm value is increasing in insiders' cash-flow rights and decreasing in insider voting rights. In instrumental variable regressions, the point estimates are similar but the significance levels are lower.
Keywords: Voting;
Cash Flow;
Stocks;
Rights;
Ownership Stake;
Value;
United States;