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Dual-class structures give executives greater voting rights over public shareholders
U.S. tech companies have increasingly adopted this structure since the mid 2010s
More U.S. Tech Companies are Adopting Unequal Voting Structures
Shareholders of public companies often receive the right to vote on corporate policies like issuing dividends or initiating mergers.
Some companies opt for a dual-class share structure, where one class is offered to the public, and another is reserved for founders and executives. Many argue that this weakens accountability, as executives can simply overrule the wishes of outside investors.
The following table lists the number of U.S. companies that have IPO’d with a dual-class share structure. This data was compiled by Jay R. Ritter, Cordell Professor of Finance at the University of Florida.
Year
Non-tech IPOs
% of Dual Class
(non-tech)
Tech IPOs
% of Dual Class
(tech)
1980
49
2%
22
0%
1981
120
3%
72
3%
1982
35
0%
42
0%
1983
278
1%
173
2%
1984
121
4%
50
4%
1985
149
4%
37
3%
1986
316
7%
77
4%
1987
226
10%
59
2%
1988
77
10%
28
14%
1989
81
6%
35
3%
1990
78
12%
32
0%
1991
215
8%
71
9%
1992
297
6%
115
4%
1993
383
8%
127
2%
1994
287
9%
115
6%
1995
257
9%
205
4%
1996
401
11%
276
5%
1997
300
13%
174
6%
1998
170
12%
113
7%
1999
106
18%
370
6%
2000
120
6%
260
7%
2001
57
11%
23
9%
2002
46
24%
20
5%
2003
45
11%
18
6%
2004
112
8%
61
5%
2005
115
11%
45
20%
2006
109
9%
48
2%
2007
83
16%
76
7%
2008
15
20%
6
0%
2009
27
11%
14
14%
2010
58
12%
33
6%
2011
45
18%
36
14%
2012
53
17%
40
15%
2013
113
20%
45
11%
2014
153
12%
53
6%
2015
80
10%
38
37%
2016
54
7%
21
24%
2017
76
22%
30
43%
2018
95
14%
39
36%
2019
75
16%
37
35%
2020
120
11%
45
42%
2021
193
24%
118
47%
2022
32
16%
6
50%
Includes IPOs on the NYSE American, NYSE, and Nasdaq Stock Market with an offer price of at least $5.00.
The biggest takeaway from this dataset is that dual-class structures have become much more prevalent among U.S. tech firms. Starting in the mid 2010s, this trend includes noteworthy IPOs such as Facebook (2012), Square (2015), Pinterest (2019), and Coinbase (2021).
In the case of Coinbase, a separate class of shares reserved for founders and insiders has 20 times the voting power of regular, publicly available shares. According to Fast Company, this gives insiders 53.5% of the overall votes.
How do Dual-Class Share Structures Impact Performance?
Ritter’s report also analyzed the three-year returns on 9,089 IPOs from 1980 to 2021. Once again, this only includes IPOs on the NYSE American, NYSE, and Nasdaq Stock Market with an offer price of at least $5.00.
Returns were calculated through the end of December 2021.
Category
Share structure
# of IPOs
3-Yr Buy-and-hold Return
Market-adjusted Return
Tech
Dual-class
295
41.0%
20.0%
Tech
Single
3,009
19.6%
-14.6%
Non-tech
Dual-class
584
24.1%
-12.7%
Non-tech
Single
5,201
17.9%
-23.9%
In both categories (tech or non-tech), IPOs with dual-class voting structures outperformed over the three year period. This outperformance was significantly higher for tech companies.
Data note:Buy-and-hold returns are calculated from the first close until the earlier of the three-year anniversary or the delisting date (the end December of 2022 for IPOs from 2020 and 2021). Market-adjusted returns are the difference between the asset’s return and the index’s return. The index in this case is the CRSP value-weighted index, which includes NYSE American, NYSE, and Nasdaq stocks.