In their paper, authors Martijn Cremers, Beni Lauterbach, and Anete Pajuste review the valuation differences between single share class companies and dual share class companies over their life cycles. The paper finds that on average at the time of their IPOs, dual share class companies have higher valuations than comparable companies with a single share class. This may be attributable to any number of factors. However, over time (six to nine years following the IPO), this premium dissipates. The authors posit that the potential benefits of dual class structures decrease over time after the IPO, and the agency costs associated with dual class structures increase over time. The fact that there is an initial valuation premium associated with dual share class companies supports the authors’ view that these companies should not be excluded from popular indices. The authors also advance the view that the decline in the premium over time suggests that there are advantages to sunset provisions that would kick in within six years of a dual share class company’s IPO.
