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THE LIFE CYCLE OF DUAL CLASS FIRM VALUATION

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We examine an extensive matched sample of US dual and single class firms in 1980-2017 from the time of their IPO , and document that the valuation difference between dual and single class firms varies over their life cycle. On average, around the time of the IPO , dual class firms have higher valuations than single class firms. Over time, this valuation premium tends to dissipate, whereas the difference between voting and equity stakes of the controlling shareholders of dual class firms (the “wedge”) tends to increase. We also observe the rise in the fraction of dual class IPOs in the 21st century is accompanied by a larger mean initial premium and a smaller mean long run discount than in the 20th century. Our results provide support for the availability of dual class structures at the IPO as well as the desirability of age based sunset provisions for such structures.

This talk is part of the Finance Seminars, CJBS series.

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