Incentives vs. control
Subtitle: an analysis of U.S. dual-class companies
By: Paul A. Gompers, Joy Ishii, Andrew Metrick.
Contributors: Ishii, Joy L.; Metrick, Andrew.; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 10240; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 10240.
Publisher: National Bureau of Economic Research
Published: 2004
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Dual class stocks -- United States.; Stockholders' voting -- United States.; Corporations -- Valuation -- United States.
Description: "Dual-class common stock allows for the separation of voting rights and cash flow rights across the different classes of equity.  We construct a large sample of dual-class firms in the United States and analyze the relationships of insider's cash flow rights and voting rights with firm value, performance, and investment behavior.  We find that relationship of firm value to cash flow rights is positive and concave and the relationship to voting rights is negative and convex.  Identical quadratic relationships are found for the respective ownership variables with sales growth, capital expenditures, and the combination of R&D and advertising.  Our evidence is consistent with an entrenchment effect of voting control that leads managers to underinvest and an incentive effect of cash flow ownership that induces managers to pursue more aggressive strategies"--National Bureau of Economic Research web site.
Notes: Includes bibliographical references.
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