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Dual-class structure and corporate innovation: International evidence

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Title:Dual-class structure and corporate innovation: International evidence
Authors:Ryou, Ji Woo
Hong, Hyun A
Kalcheva, Ivalina
Keywords:dual-class structure
Date Issued:01 Sep 2018
Abstract:This paper documents that corporate innovation is negatively affected by the dual-class ownership structure, featured by the control-ownership wedge due to two classes of common stock with differing voting rights, in a global setting. We measure innovation by the number of patents and patent citations, capturing the quantity and quality of innovation, respectively. The negative association is moderated by firm growth opportunities, higher reporting quality and stronger external disciplinary mechanisms. Additionally, we analyze the potential mechanisms driving this result and document that an underlying mechanism is the managerial consumption of private control benefits as represented by the voting premium attached to the superior voting shares. However, we find that the negative association is confined to old and mature firms. Thus, while the dual-class structure appears to nurture corporate innovation at an early stage of a firm, this structure hampers corporate innovation at a later stage, arguably due to managerial consumption of control benefits through the innovative projects.
Appears in Collections: 21 Financial: Executive compensation/Debt contract/Ownership structure

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