We examine the effects of several corporate governance and monitoring mechanisms on the choice
of dual-class status and firm performance of dual-class firms. Employing 736 firms that
implemented dual-class and 7,027 single-class firms during the period 1996-2002, we find that
dual-class firms tend to be larger, higher director ownership and institutional ownership, lower
blockholdings, and smaller fraction of independent outside directors on their board than those of
single-class firms. In addition, we observe that dual-class firms are followed by smaller number of
security analysts. After correcting for endogeneity bias, our regression results show that firms with
higher analyst coverage and lower wedge, measured as the difference between voting rights and
cash flow rights, are strongly associated with Tobin’s q. In contrast, blockholders’ ownership, board
independence, and institutional ownership play a relatively insignificant role in enhancing Tobin’s
q. We interpret our results to mean that security analysts are the most effective monitoring
mechanism that influence both the dual-class choice and firm performance. Our results are not
attributed either to the difference in firm size or to an industry effect.
Key words: Dual-class firms; corporate governance; firm performance
