The disclosure effects of dual class ownership structures

This dissertation thesis provides evidence that the detachment of control rights from cash flow rights in US and Canadian dual class share firms are associated with lower levels of voluntary disclosure. While prior studies have looked at the effect of ownership concentration on disclosure, this study focuses on one mechanism through which concentrated ownership is achieved and its effect on voluntary disclosure. The evidence is consistent with the explanation that controlling owners use opaqueness in disclosures to conceal private rents. To examine the research question, my study develops a new disclosure index that captures managerial discretionary disclosure decisions with respect to compensation practices. By attempting to address the selection bias that could confound the disclosure predictions, the study also provides empirical insights into which firms choose dual class equity. The within dual class sample analyses employed as an alternative method to mitigate selection biases, reveal that disclosure is decreasing in the largest controlling shareholder's divergence between control rights and cash flow rights. I also find evidence that disclosure levels are decreasing in the premium at which superior voting shares trade relative to inferior voting shares---a proxy for the controlling shareholder's private benefits from control. In addition to the above, I also provide some cross-country analyses. The evidence is largely consistent with a higher rent extraction explanation in weaker regimes. Dual class share firms in weaker regimes disclose lesser information than their stronger regime dual class share counterparts. Based on prior literature, Canada is hypothesized in this study to have weaker regulatory enforcement and thus a weaker investor protection environment. Finally, the study provides direct evidence that separating control rights from cash flow rights enables managers to extract private rents in the form of excess executive compensation.