Second, the NYSE was faced with requests by listed firms to be allowed to use dual-class recapitalization for defending themselves against takeovers.
Managerial ownership change and firm value: Evidence from dual-class recapitalizations and insider trading.
However, after expanding the data-set of Partch from 44 firms to 94 and including recapitalizations from 1984 to 1987, Jarrell and Poulsen (1988) find that shareholders experience significant negative abnormal returns from dual-class recapitalization announcements.
Furthermore, the dual-class recapitalization may enable managers to maintain their firm-specific human capital wealth.
1) This hypothesis views the dual-class recapitalization as optimal recontracting that is intended to create shareholder wealth.
Although they do not examine dual-class recapitalization, Jarrell and Poulsen (1988) find that adoption of supermajority provisions, which also give increased bargaining leverage to large blockholders of stock, leads to a small but statistically significant decrease in shareholder wealth.
Defensive, dual-class recapitalizations
started to occur.
Bacon, Cornett, and Davidson (1997) demonstrate that the stock price reaction to dual-class recapitalizations is related to the board's characteristics.
Davidson, III, 1997, "The Board of Directors and Dual-Class Recapitalizations," Financial Management 26, 5-22.
While the economic benefits of leveraged transactions have been studied extensively (see, for example, Jensen, 1989), there has been somewhat less investigation of equity-based restructurings, such as spin-offs, equity carve-outs, and dual-class recapitalizations.
This study examines share price reactions to dual-class recapitalizations and obtains a result different from the study by Partch (1987), who documents a positive share price reaction.
Poulsen, "Consolidating Corporate Control: Dual-class Recapitalizations
versus Leveraged Buyouts," Journal of Financial Economics (October 1990), pp.