Dual Class Shares and Firm Valuation : Evidence from SEC Rule 19c-4

In the 1980s, stock exchanges and eventually the SEC took actions that affected the eligibility of listed firms to adopt dual-class shares with differential voting rights. We find that risk-adjusted stock returns increase (decrease) in reaction to regulatory events that decrease (increase) the probability of firms’ ability to adopt dual-class shares. This short run reaction varies systematically across firms, suggesting that dual-class shares are viewed positively in research intensive and well-governed firms. In the long run, banning dual-class shares leads to lower research output, firm value, and profitability. Overall, our results suggest dual-class shares facilitate innovation and increase valuations