The Journal of Finance

Agency Problems at Dual‐Class Companies

Published: 07/16/2009   |   DOI: 10.1111/j.1540-6261.2009.01477.x

RONALD W. MASULIS, CONG WANG, FEI XIE

Using a sample of U.S. dual‐class companies, we examine how divergence between insider voting and cash flow rights affects managerial extraction of private benefits of control. We find that as this divergence widens, corporate cash holdings are worth less to outside shareholders, CEOs receive higher compensation, managers make shareholder value‐destroying acquisitions more often, and capital expenditures contribute less to shareholder value. These findings support the agency hypothesis that managers with greater excess control rights over cash flow rights are more prone to pursue private benefits at shareholders’ expense, and help explain why firm value is decreasing in insider excess control rights.

Corporate Governance and Acquirer Returns

Published: 08/14/2007   |   DOI: 10.1111/j.1540-6261.2007.01259.x

RONALD W. MASULIS, CONG WANG, FEI XIE

We examine whether corporate governance mechanisms, especially the market for corporate control, affect the profitability of firm acquisitions. We find that acquirers with more antitakeover provisions experience significantly lower announcement‐period abnormal stock returns. This supports the hypothesis that managers at firms protected by more antitakeover provisions are less subject to the disciplinary power of the market for corporate control and thus are more likely to indulge in empire‐building acquisitions that destroy shareholder value. We also find that acquirers operating in more competitive industries or separating the positions of CEO and chairman of the board experience higher abnormal announcement returns.