Incentives vs. Control: An Analysis of U.S. Dual-Class Companies
|
NBER Working Paper No. 10240
Issued in January 2004
NBER Program(s): CF AP
An NBER digest for this paper is available.
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.
This paper is available as PDF (320 K) or via email.
Machine-readable bibliographic record -
MARC,
RIS,
BibTeX
|
|
|
About
Support
The research activities of the NBER are funded by grants from federal research agencies, by private foundations, and by generous donations from our corporate associates and from private individuals. The NBER is a non-profit, 501(c)(3) organization. For information on supporting the NBER, please contact:
Mr. Denis Healy, Director of Development
NBER
1050 Massachusetts Avenue
Cambridge, MA 02138-5398
ph: 617-868-3900
email: dhealy@nber.org
Close
