Topic

Paradox of Dual Class Shares in IPOs: Antecedents and Consequences

Speaker

Dr. Mazhar Islam

Date

10thJanuary, 2021(Sunday)

Time

20:00-21:30(Beijing Time)

Language

English

Via

ZOOM(https://tulane.zoom.us/j/99979895204, MeetingID: 999 7989 5204)

Speaker

Dr. Mazhar Islam is the Chase Distinguished Professorship of International Business and an Assistant Professor of International Business at the College of Business, Loyola University New Orleans, USA. Previously he was a faculty at Tulane University, USA and at Drexel University, USA. He has taught at twelve leading business schools in China, Chile, Colombia, Germany, Guatemala, India, Peru, Panama and the USA. His research has been published in international journals such as the Journal of Business Venturing and Research Policy, featured in the MIT Sloan Management Review and received the best conference paper award at the Strategic Management Society conference. He was a co-founder of STEM-Away (www.stemaway.com), a San Francisco Bay area startup. Currently he advises several startups. Before joining academia, he worked as a mining engineer, an international business development manager, an investment banker and a consultant in Bangladesh, Thailand, Germany and USA. He received Bachelor of Technology (Honors) in Mining Engineering from the Indian Institute of Technology (IIT), Kharagpur, MBA from the Asian Institute of Technology (AIT), Thailand, M.S. in Management from the New Jersey Institute of Technology, USA and Ph.D. in Strategic Management from the University of Minnesota’s Carlson School of Management.

Seminar Introduction

Firms are increasingly using dual-class shareholding structures at the time of initial public offerings (IPOs). In a dual-class shareholding structure, one class of shareholders are given lower or no voting rights (Class A) while the other class of shareholders (Class B) preserve substantial voting rights. In general, founders and managers control Class B shares. Previous research provides two opposing views. One stream of research suggests that when managers control more voting rights, they create higher firm value by investing in long-term projects because they can insulate the firm from short-term investors and capital market pressures. In contrast, the other stream of research suggests that managers with more voting rights can gain higher private benefits by engaging is shareholder value-destroying activities. Our research seeks to uncover this apparent paradox by investigating both antecedents and consequences of dual-class shareholding structures at the time of IPO. In particular, we focus on how the propensity of offering dual-class shares is related to whether the IPO firms received VC-funding and whether the CEOs of these firms were founder-CEOs. In addition, we focus on the performance implications of dual-class shareholding structures. We investigate these relationships using all the IPO firms the U.S. stock exchanges between 1990 and 2018 on. We discuss the implications of the study for IPO firms and the policymakers.