Working Paper: NBER ID: w28609
Authors: Dhruv Aggarwal; Ofer Eldar; Yael Hochberg; Lubomir P. Litov
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: dual-class stock; IPOs; founder control; venture capital; agency costs
JEL Codes: G24; G28; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased availability of investment capital (O16) | greater founder bargaining power (L14) |
| favorable market conditions (G10) | greater founder bargaining power (L14) |
| latest-stage VC investment (G24) | wedge between founders' voting and economic rights (D72) |
| dry powder (Y20) | wedge between founders' voting and economic rights (D72) |
| founder bargaining power (L14) | increase in controlling power of founders (P12) |
| founder-controlled foreign firms (F23) | larger wedges between voting and economic rights (D72) |
| greater founder bargaining power (L14) | higher likelihood of adopting dual-class structures (G32) |