DUAL CLASS FIRMS AND DEBT ISSUANCE

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Nilanjan Basu, Ming Qiu

https://doi.org/10.22495/cocv14i1p2

Abstract

We examine the manner in which debt issuance by dual class firms differs from that issued by comparable single-class firms. Using the comprehensive sample of dual class firms compiled by Gompers, Ishii, and Metrick (2010), we find that dual class firms tend to borrow at lower interest rates and for longer maturities but face more covenants, especially performance based covenants. Our results are robust to corrections for the endogenous choice of dual class share structures. We also find that the returns earned by the stocks of these dual class firms have lower volatility. Our findings are consistent with the conjecture that dual class firms tend to avoid idiosyncratic risk and that with the help of performance based covenants, creditors are able to create safer lending opportunities with dual class firms than with single-class firms.

Keywords: Dual Class, Loans, Debt Covenants, Corporate Governance/Executive Compensation

How to cite this paper: Basu, N., & Qiu, M. (2016). Dual class firms and debt issuance. Corporate Ownership & Control, 14(1), 20-29. https://doi.org/10.22495/cocv14i1p2