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77. Roberto Tallarita, High Tech, Low Voice: Dual-Class IPOs in the Technology Industry, 05/2018.

Abstract: An increasing number of companies, especially in the technology sector, decide to go public with a dual-class share structure, where public shareholders have less voting power than insiders. To many observers, this is a matter of serious concern, as controlling shareholders can dominate the firm with fewer shares and much less accountability. But if dual-class structures deprive shareholders of their voting rights, why do many successful companies--including Google, Facebook, and many other innovative firms--adopt them and why do investors accept to be voiceless? In the past, legal and financial scholars have addressed this question with different, and sometimes contradictory, results. But, to date, there is no comprehensive analysis of the post-2010 wave that has made dual-class IPOs a pervasive phenomenon in the American corporate landscape. This paper starts to fill this gap by analyzing a comprehensive dataset of IPOs of U.S. tech companies on a major domestic exchange between January 2012 and September 2017 (filing date). I find a positive correlation between dual-class shares and companies where the CEO is a founder, and a negative correlation with the fraction of equity owned by venture capital and private equity funds before the IPO. These findings are consistent with the view that private benefits of control are an important driver of dual-class IPOs and IPO investors believe that unequal voting rights reduce the value of the firm. I find no evidence, instead, that dual-class structures are adopted by managers to focus on long-term projects, as many tech entrepreneurs claim. In fact, firms with a higher propensity to invest in research and development (“R&D”) are not more likely to adopt a dual-class structure, and dual-class companies are not more likely to increase their R&D investments in the two years after the IPO.