Dual-class shares: implications for firm valuation and corporate governance

Using a data set of corporate voting rights of firms in North-Western Europe from 2009-2018, the valuationdynamics over maturity ofdual-class firmsarecompared to single-class firms. By means of regression analysis using Tobin’s qas dependent variable, this is assessed on the basis of dual-classand maturityindicators, while controlling forfirm characteristics and industryby year fixed effects. Indicative evidence is found thattheinvestment q-sensitivity and valuationof dual-class firms tend to decline over maturity, compared to their single-class equivalents.Furthermore, probit analysis suggests that highly levered and innovative firms are more likely to have dual-class status.These findings challenge the notion of theoptimality of the one share-one vote principleand suggest more benefits of dual-class voting in the developmental stages of a firm’s life cycleby enabling management to maximize long-term valuewhen growth potential is high.