dual-class recapitalization

dual-class recapitalization

The issue of a second class of common stock, generally with reduced voting power, in exchange for already outstanding shares of common stock. This type of recapitalization typically results in the entrenchment of management that enjoys increased control over corporate affairs.
References in periodicals archive ?
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.
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.