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Abstract

This J.S.D dissertation consists of two articles that shed new light on the determinants of dual-class structures among technology-based firms, and contribute to the long-standing debate over the desirability and uses of dual-class stock structure more broadly, from both empirical and theoretical perspectives. The first article contributes to the dual-class debate by introducing a novel measure to analyze factors influencing technology-based firms in their decision to adopt a dual-class structure. Using media coverage of firms’ founders prior to their IPO as a proxy for their idiosyncratic vision, this article’s first and primary finding indicates that idiosyncratic vision strongly predicts the use of dual-class structure among technology-based firms. Further analysis shows that the effect of media coverage as a proxy for a founder’s idiosyncratic vision differs according to a firm’s state of incorporation, such that idiosyncratic vision is of greater importance for firms incorporated outside of the state of Delaware. While exploring possible explanations for this striking finding, this analysis also highlights certain costs associated with the penalties and obstructions institutional investors impose to discourage divergence from a single-class structure. The second article builds on the empirical findings to identify the increased benefits and the reduced costs associated with dual-class structures for firms with significant innovative activity, and to further analyze the implications of recent policy efforts on both financial markets and innovation in firms. It argues in favor of dual-class listings on the grounds that it protects against the possibility of founders being prevented prematurely from realizing their long-term strategic vision, leading to suboptimal performance and an increase in firms’ cost of capital. This article analyzes through this lens recent attempts to limit the use of dual-class stock structure.

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