The Rise of Dual-Class Stock IPOs

72 Pages Posted: 4 Nov 2020 Last revised: 31 Mar 2021

See all articles by Dhruv Aggarwal

Dhruv Aggarwal

Yale University, School of Management, Students

Ofer Eldar

Duke University School of Law; Duke University - Fuqua School of Business; Duke Innovation & Entrepreneurship Initiative

Yael V. Hochberg

National Bureau of Economic Research (NBER); Rice University - Jesse H. Jones Graduate School of Business

Lubomir P. Litov

University of Oklahoma - Michael F. Price College of Business; University of Pennsylvania - Wharton Financial Institutions Center

Multiple version iconThere are 2 versions of this paper

Date Written: March 12, 2021

Abstract

We create a novel dataset to examine the nature and determinants of dual-class IPOs. We document that dual-class firms have different types of controlling shareholders and wedges between voting and economic rights. We find that the founders' wedge is largest when founders have stronger bargaining power. The increase in founder wedge over time is due to increased willingness by venture capitalists to accommodate founder control and technological shocks that reduced firms' needs for external financing. Greater founder bargaining power is also associated with a lower likelihood of sunset provisions that eliminate dual-class structures within specified periods.

Keywords: Corporate Governance, Dual-class, Entrepreneurship, Venture Capital, Private Firms, Initial Public Offerings (IPOs), Raising Capital

JEL Classification: G34, G28, G24

Suggested Citation

Aggarwal, Dhruv and Eldar, Ofer and Hochberg, Yael V. and Litov, Lubomir P., The Rise of Dual-Class Stock IPOs (March 12, 2021). NBER Working Paper 28609; Duke Law School Public Law & Legal Theory Series No. 2020-78, Available at SSRN: https://ssrn.com/abstract=3690670 or http://dx.doi.org/10.2139/ssrn.3690670

Dhruv Aggarwal

Yale University, School of Management, Students ( email )

New Haven, CT
United States

Ofer Eldar (Contact Author)

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Yael V. Hochberg

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

Lubomir P. Litov

University of Oklahoma - Michael F. Price College of Business ( email )

307 West Brooks
Norman, OK 73019-4004
United States

University of Pennsylvania - Wharton Financial Institutions Center

2306 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
United States

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