Although a great deal of uncertainty has surrounded the interpretation of dual-class stock empirical evidence, if studies that pertain to different types of firm performance are collated, emerging trends are evident.Event-based studies are the least useful, since the effect of dual-class stock creation or dissolution is often masked by contemporaneous events.More helpful are firm value studies, using Tobin’s Q or derivatives thereof, which generally show negative correlation between dual-class stock and firm value.However, buy-and-hold return studies show that investors earn as good (if not better) returns investing in notional portfolios of dual-class stock than matched one share, one vote firms, and the operating performance of dual-class firms is generally at least as good as matched one share, one vote firms.Although emerging evidence suggests that differences may subsist between different types of firms, with high-growth firms potentially benefiting the most from dual-class stock, overall, investors protect themselves from the perceived risks by pricing them in, and, in fact, discounting is arguably excessive.Rather than prohibiting dual-class stock, the conversation should shift to using public shareholder protections to reduce the cost of capital for such firms, since the evidence does not show that dual-class stock harms public shareholders.

The provenance of the FCA’s distrust of dual-class stock is the concern that a controller with control over the board of a listed company may use its unadulterated power to cause the company to act in a manner that creates ‘private benefits of control’ (or ‘controller benefits’ as labelled in this book) for the controller to the detriment of public shareholder value.That distrust is demonstrated by the plethora of regulations that notionally blunt the powers of controlling shareholders.However, one share, one vote controlling shareholder firms, such as Fraser Group and Antofagasta, are permitted on the premium tier, and the empirical evidence is inconclusive that they harm public shareholders.With one share, one vote, the controller necessarily has to own a significant portion of the equity to maintain control, constraining the financial incentives to extract controller benefits, and, as a tradeoff against public shareholder expropriation, incentivising monitoring which reduces managerial agency costs.The harsher treatment of dual-class stock stems from a diminishing equity-constraint, with the incentives to extract controller benefits increasing at an accelerating rate as the controller’s equity ownership declines.It is not, though, a fait accompli that controllers will, in fact, use dual-class stock in an invidious manner.