Valuation, operating performance, expenditure decisions and management ownership of listed Canadian dual-class firms

Dual-class capital structures, which are characterized by holders of one class of common stock having greater voting rights than holders of another class, are relatively common among Canadian corporations. The cash flow ownership and voting rights ownership of M&D (management and directors) diverge substantially for many Canadian firms with dual-class equity structures, and M&D voting rights ownership generally exceeds cash flow ownership. The relation between firm value and M&D voting ownership is negative and convex. In contrast, the relation between firm value and M&D cash flow ownership is indeterminate, which corresponds with the notion that the primary motive for dual-class equity structures is to ensure voting control. The relation between capital expenditures and M&D voting ownership is negative and convex with increasing M&D voting ownership. The relations between measures of operating performance (such as sales growth, net profit margin and return on equity) or combined R&D and advertising expenditures relative to assets and sales with either M&D cash flow or voting ownership also are indeterminate.