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Corporates with Dual Share Structures Fail to Deliver Returns

US-based listed companies that have been public for five or more years with a dual class share structure (DCSS) are delivering “significantly lower” returns. New research published by the CII Research and Education Fund (CII-REF) has indicated that these assessed companies had an average annualised return of 3.7%, which is lower than the total return of US SMEs (5.53%) and the US total market (10.85%) for the same time period. Annualised returns were also calculated for companies that went public more recently than five years ago, with CII-REF noting they had an average return of -22.32%. “Dual-class stock structures and classified boards are perennial issues in corporate governance, drawing sustained attention from both market participants and academics,” the report said. “Dual-class structures grant outsized voting rights, relative to other classes of stock with equal economic rights, usually to insiders such as founders. The concern for investors, as owners of the corporation, is that these insiders may have incentives that do not align with maximizing long-term shareholder value.” The report noted that further research could explore the relationship between long-term shareholder value and these governance practices, including the effectiveness of responses such as time-based sunsets.

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