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Disentangling the Incentive and Entrenchment Effects of Managerial Ownership on Voluntary Disclosure: Evidence From Dual Class Share Firms
Surjit Tinaikar,
University of Florida
ABSTRACT. While prior studies have looked at the effect of ownership concentration on disclosure, this study focuses on the mechanism through which concentrated ownership is achieved and its effect on voluntary disclosure. Specifically, it provides evidence that control divergence in dual class firms induces lower levels of voluntary disclosure. To examine the research question, my study develops a new compensation disclosure index. The within dual class sample analyses reveal that disclosure is decreasing in managers’ voting control but increasing in their cash flow rights. To present direct evidence on the agency costs of dual class equity, the study also shows that control divergence results in excess compensation for managers of dual class share firms relative to single class share firms. Furthermore, an analysis of only dual class share firms reveals that excess compensation increases at voting control levels above 25% and falls at managerial ownership levels above 16%.
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