Concentrated control and corporate value: a comparative analysis of single and dual class structures in Canada

Abstract

This study directly examines the empirical relationship between corporate value and three distinct ownership structures using data from Canada, where the security laws and shareholder protection conditions are similar to those of the US (La Porta et al., 1999) but corporate control tends to be more concentrated (Holderness et al., 1999 Holderness, C, Kroszner, R and Sheehan, D. 1999. Were the good old days that good? Changes in the managerial stock ownership since the great depression. Journal of Finance, 54: 435–69. [Crossref], [Web of Science ®] , [Google Scholar]). Ownership structure is classified in three ways: dual class firms, single class closely-held firms and widely-held firms. The focus of this article is to test for the impact of concentrated control on corporate value using either dual class or single class closely-held ownership structure. The empirical results, using both fixed and random effects estimation methods, show that after controlling for size, financial leverage, percentage of outside directors and industry differences, dual class companies sell at a significant discount compared to closely-held single class companies. Consistent with Claessens et al. (2002 Claessens, S, Djankov, S, Fan, JPH and Lang, LHP. 2002. Disentangling the incentive and entrepreneurial effects of large shareholdings. Journal of Finance, 57: 2741–771. [Crossref], [Web of Science ®] , [Google Scholar]), and Gompers et al. (2004) dual class structure in Canada lessens corporate value because it lowers shareholder and manager alignment and increases agency problems. We also find that pyramid structure has a negative impact on value in both dual class and single class closely-held companies.

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