Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Management

Faculty/School

School of Business and Economics

First Advisor

Ben Amoako-Adu

Advisor Role

Dissertation Supervisor

Abstract

This dissertation comprises three related but different essays on corporate governance issues. The essays are preceded by an overview of the major areas of corporate governance research. The first essay investigates whether the valuation discount of dual class firms reported in the literature can be explained by three channels through which private benefits can be extracted—excess compensation, excess cash and excess capital expenditure. With a propensity score matched sample of S&P 1500 dual class and single class companies, I provide evidence that excess compensation and excess cash holdings of dual class companies lead to a larger discount that investors apply to the value of dual versus single class companies. However, capital expenditure is not statistically significant in explaining the dual class discount.

The second essay examines the impact of concentrated control under dual and single class share structure on dividend policy. Three potential dividend policy hypotheses—extraction of private benefits, family legacy and managerial reputation—are proposed and tested. The results indicate that in the U.S. dual class firms pay less dividends and cash dividend and total distribution decrease as the divergence of voting and cash flow rights widens. This is consistent with the extraction of private benefits and the family legacy hypotheses. However, using excess CEO compensation to disentangle these two hypotheses, the payment of lower dividends in dual class firms is consistent with the extraction of private benefits hypothesis.

The third essay investigates the impact of managerial and board entrenchment on dual class discount. Dual class ownership structure is arguably the most effective anti-takeover mechanism as it allows controlling shareholders to maintain concentrated voting positions even if additional equity needs to be issued. Thus, management is insulated from hostile takeover and is able to become entrenched. Investors, knowing that dual class structure can result in entrenchment, will discount the value of dual class firms. I provide evidence that the larger the degree of entrenchment the larger the dual class discount. The results also show that anti-takeover defenses in dual class firms, such as classified boards, serve to entrench managers.

Convocation Year

2010

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