We find that dual-class firms experience less underpricing than single-class firms and explore several hypotheses which explain this phenomenon. Compared to single-class firms, dual-class companies have slightly higher post-IPO institutional ownership and experience fewer control events. Although dual-class firms achieve a lower underpricing cost, they trade at lower prices relative to earnings and sales than single-class IPOs. This pricing differential, combined with evidence that dual-class managers earn higher compensation and that dual-class shares are common among media and entertainment industry IPOs, suggests that dual-class ownership structures protect private control benefits.
Research & Publications
Control as a Motivation for Underpricing: A Comparison of Dual- and Single-Class IPOs
2003, Journal of Financial Economics
Scott B. Smart, Chad J. Zutter
Smart, Scott B. and Chad J. Zutter (2003), “Control as a Motivation for Underpricing: A Comparison of Dual- and Single-Class IPOs,” Journal of Financial Economics, July.