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.
It should be noted that either explanation could describe management's motivation for a dual-class recapitalization, but which explanation is the dominant one is likely to depend on organization structure.
In a third study measuring wealth effects of dual-class recapitalization, Moyer, Rao, and Sisneros (1992) examine changes in firms and external monitoring forces that occurred after dual-class recapitalizations.
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.
Poulsen, 1990, "Consolidating Corporate Control: Dual-Class Recapitalizations versus Leverage Buyouts," Journal of Financial Economics 27, 557-580.
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, 1990, "Consolidating Corporate Control: Dual-class Recapitalizations Versus Leveraged Buyouts," Journal of Financial Economics (December), 557-580.
Poulsen, "Consolidating Corporate Control: Dual-class Recapitalizations
versus Leveraged Buyouts," Journal of Financial Economics (October 1990), pp.