TY  - JOUR
AU  - Gompers,Paul A.
AU  - Ishii,Joy
AU  - Metrick,Andrew
TI  - Incentives vs. Control: An Analysis of U.S. Dual-Class Companies
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10240
PY  - 2004
Y2  - January 2004
UR  - http://www.nber.org/papers/w10240
L1  - http://www.nber.org/papers/w10240.pdf
N1  - Author contact info:
Paul Gompers
Harvard Business School
Baker Library 263
Soldiers Field
Boston, MA 02163
Tel: 617/495-6297
Fax: 617/496-8443
E-Mail: pgompers@hbs.edu

Joy Ishii
Stanford Graduate School of Business
Littlefield 252
518 Memorial Way
Stanford, CA  94305
Tel: 650-724-6376
Fax: 650-725-0468
E-Mail: ishii_joy@gsb.stanford.edu

Andrew Metrick
Yale School of Management
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520
Tel: 203/432-3069
E-Mail: metrick@yale.edu
AB  - Dual-class common stock allows for the separation of voting rights and cash flow rights across the different classes of equity. We construct a large sample of dual-class firms in the United States and analyze the relationships of insider's cash flow rights and voting rights with firm value, performance, and investment behavior. We find that relationship of firm value to cash flow rights is positive and concave and the relationship to voting rights is negative and convex. Identical quadratic relationships are found for the respective ownership variables with sales growth, capital expenditures, and the combination of R&D and advertising. Our evidence is consistent with an entrenchment effect of voting control that leads managers to underinvest and an incentive effect of cash flow ownership that induces managers to pursue more aggressive strategies.
ER  -