The innovation effect of dual-class shares: New evidence from US firms |
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Institution: | 1. Federal University of Espírito Santo (UFES), Av. Fernando Ferrari, 514, Vitória, ES 29075-910, Brazil;2. Coppead Graduate School of Business at the Federal University of Rio de Janeiro (COPPEAD/UFRJ), R. Pascoal Lemme, 355, Rio de Janeiro, RJ 21941-918, Brazil |
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Abstract: | The proliferation of dual-class structures in the US stock market presents a controversial trend since such shares are traditionally deemed to damage governance quality. We study the relationship between 362 firms with dual-class shares and their innovativeness using patent citations from Google Patents over the 1976 through 2006 period. We find dual-class shares have significant innovation effect in high-tech sectors, hard-to-innovate industries, firms with higher external takeover threat and firms heavily dependent on external equity financing. We also document a positive causality relationship between dual-class structures and the quality of innovation. The channel for this causal relationship is the protection mechanism by which managers can take a long-term view. From a policy perspective, regulators should promote a corporate governance system that protects corporate long-term interest for shareholders. |
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Keywords: | Dual-class Innovation Patents Citations Corporate governance JEL G30 G34 O31 O32 |
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