The Rise of Dual-Class Stock IPOs

72 Pages Posted: 30 Mar 2021 Last revised: 16 Apr 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 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.

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Suggested Citation

Aggarwal, Dhruv and Eldar, Ofer and Hochberg, Yael V. and Litov, Lubomir P., The Rise of Dual-Class Stock IPOs (March 2021). NBER Working Paper No. w28609, Available at SSRN: https://ssrn.com/abstract=3814596

Dhruv Aggarwal (Contact Author)

Yale University, School of Management, Students ( email )

New Haven, CT
United States

Ofer Eldar

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
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Duke University - Fuqua School of Business ( email )

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Duke Innovation & Entrepreneurship Initiative ( email )

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Yael V. Hochberg

National Bureau of Economic Research (NBER) ( email )

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

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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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