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  • March 2010
  • Article
  • Review of Financial Studies

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

Citation

Gompers, Paul A., Joy Ishii, and Andrew Metrick. "Extreme Governance: An Analysis of Dual-Class Firms in the United States." Review of Financial Studies 23, no. 3 (March 2010).
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About The Author

Paul A. Gompers

Entrepreneurial Management
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