Original title: The Dynamic Trade-Off of Dual-Class Shares
Hyunseob Kim, Doron Levit, Roni Michaely · August 2026
When company founders create dual-class shares, they keep voting control even if they sell off most of the company. This protects the founder's unique skills and vision, but it creates agency costs, which are problems that happen when the people running a firm do not own it. Researchers studied 52 years of United States data to track how this balance changes over time. They found that company valuations jump right after firms adopt dual-class shares. However, this value boost fades over time, while innovative output increases persistently. These shifts are strongest in industries needing heavy firm-specific investments. As dual-class firms grow older, their investments become less sensitive to opportunities, and the extra price investors pay for voting power rises.
Imagine a family business where the founder keeps all the decision-making power but sells most of the ownership to outsiders. At first, the founder's vision drives growth, but over time, the outsiders worry the founder might make decisions that benefit only themselves. In this paper, the dual-class structure is that founder's control, and the researchers find that while it initially boosts company value and innovation, the value eventually declines as the costs of that separation become apparent.
For investors, this means dual-class shares can be good for innovation but the valuation boost fades, so timing matters. For policymakers, it suggests that regulations on dual-class shares should consider the dynamic effects, not just static costs. Founders may benefit from long-term innovation gains despite eventual valuation decline.
The abstract focuses on US firms and finds effects concentrated in industries with high firm-specific investments, so the results may not generalize to other countries or industries. The analysis relies on difference-in-differences, which assumes parallel trends, though this is not explicitly discussed.
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The Dynamic Trade-Off of Dual-Class Shares — Hyunseob Kim, Doron Levit, Roni Michaely
Abstract licence: CC0
Explanation generated by Synthesis from the abstract — it is not the original paper. This is a preprint, so it hasn't necessarily been peer reviewed.