Despite exhibiting significant valuation discounts, dual-class shares surged from 1% of initial public offerings in 1980 to nearly half in recent years. This study investigates the potential harm of such structures by examining the identity and returns of minority shareholders. We find that sophisticated investors predominantly hold low-voting shares. Furthermore, outside shareholders earn a positive risk premium rather than suffering low returns, consistent with the hypothesis that market prices compensate for the risk associated with dual-class structures. Our analysis reveals that such structures are confounded with family control, which is present in 89% of dual-class firms in the Russell 3000. Interestingly, single-class firms with family shareholders also enjoy positive abnormal returns, implying minority shareholders care more about the presence of a controlling shareholder than a specific voting structure. This research contributes to the ongoing debate on restricting dual-class structures by highlighting the complex relationship between ownership, control, and shareholder returns.

Despite exhibiting significant valuation discounts, dual-class shares surged from 1% of initial public offerings in 1980 to nearly half in recent years. This study investigates the potential harm of such structures by examining the identity and returns of minority shareholders. We find that sophisticated investors predominantly hold low-voting shares. Furthermore, outside shareholders earn a positive risk premium rather than suffering low returns, consistent with the hypothesis that market prices compensate for the risk associated with dual-class structures. Our analysis reveals that such structures are confounded with family control, which is present in 89% of dual-class firms in the Russell 3000. Interestingly, single-class firms with family shareholders also enjoy positive abnormal returns, implying minority shareholders care more about the presence of a controlling shareholder than a specific voting structure. This research contributes to the ongoing debate on restricting dual-class structures by highlighting the complex relationship between ownership, control, and shareholder returns.

Exchanges and index providers increasingly push firms to equalize shareholder voting rights. We explore the potential harm arising from dual-class structures by studying the identity and returns of minority shareholders. First, we find that sophisticated investors disproportionately own low-voting shares. Second, founders and descendants control 89% of dual-class firms across the Russell 3000. Third, low-voting shareholders receive a positive risk premium rather than suffering low returns. Our findings suggest that minority shareholders care about the presence of a controlling shareholder rather than a particular voting structure. Minority shareholders receive compensation via higher expected returns for bearing the associated control-right risk.

Although theory predicts that family firms should be less willing to bear risk than nonfamily firms, prior empirical papers have not found support for this prediction. In this paper, we focus on conditional currency risk because founding families can relatively easily influence their firms' currency exposure. We find that family firms have relatively lower conditional currency exposure. This result holds for both descendant-led and nonfamily-led family firms. Consistent with purposeful actions of founding families, we find that exposure decreases with control-enhancing mechanisms, such as excess voting rights. The findings also support a wealth-preservation motive, evidenced by a finding that exposure declines with the number of family beneficiaries. Additional analysis suggests that family firms achieve the relatively lower risk by reducing internationalization depth and limiting exposure to riskier currencies.

We conduct a randomized field experiment (RFE) to assess whether startup firms perceive accounting expertise as an important investor credential. We send 13,358 unsolicited and unique emails to active startup firms across the US, showing an interest in them with a proposition to meet a bogus investor. The experiment has high response rates, with 4,535 (33.94%) opened emails and 828 (6.19%) website visits, reflecting investors’ proliferating practice of outbound origination to contact new startups. Our RFE compares startup reactions to fictitious investors with certified public accountant (CPA) designations versus two control groups: investors without credentials and those with other professional licenses. Startup firms are 48% likelier to read unsolicited emails from CPA-bearing investors and 47% likelier to visit their websites, relative to investors with a medical license. We document an analogous preference for CPA-bearing investors even when we separately analyze startups in medical-related industries. This gap persists when investors pose as angels, venture capitalists (VCs), or without professional licenses. The relatively low percentage (2.5%) of email bounces and spam reports makes it unlikely that spam algorithms drive the findings. Further tests reveal that the response rates differ by firm age, which is inconsistent with spam filter explanations but congruent with startup firms’ demand for accounting expertise. Finally, we undertake a follow-up experiment with 3,443 new startups to distinguish between accounting and general business expertise using a master’s in business administration (MBA). Startups are 13.8% likelier to read emails from a CPA-bearing investor than from an MBA-credentialed investor and 22.6% more likely to visit the CPA-bearing investor’s website.

We examine the inclusion of debt performance metrics (DPMs) into executive compensation contracts as a strategic response to the agency costs of debt. Using a manually collected dataset, we find that approximately 19% of US publicly traded firms incorporated DPMs in their compensation contracts between 2007 and 2020. The likelihood of including DPMs increases after creditors' mon-itoring incentives increase due to credit quality deterioration or debt maturity pressure. To facilitate causal inferences, we use the exogenous default of lenders' other clients and observe that focal companies are more likely to include DPMs in compensation contracts when lenders perceive an increased likelihood of future insolvency. We document that shareholders incorporate more non-debt metrics in their incentive programs in response to DPM inclusion, and they request the inclu-sion of DPM before corporate borrowing. Our results indicate that firms with DPMs in compensa-tion contracts reduce future R&D intensity and SG&A expenses. Our study highlights the im-portance of debt-related factors in executive compensation and contributes to understanding the agency costs of debt.

Reporting research and development together implies their allocation provides limited insight to investors. We construct and corroborate unique measures of development and research to evaluate this aggregation. These measures combined correlate with reported R&D expenditures at 99% (industry) and 81% (firm). In the individual measure validation tests, our research measure correlates with scientific publications (77%), while the development measure correlates with patents (71%). Our R&D measures cover 76% of NYSE firms, providing broader coverage than patents (30%), new product announcements (20%), and reported expenditures (46%). Our tests reveal that research and development differ significantly in predicting future earnings and cash flows. The allocation between research and development also helps predict whether a firm discloses its R&D expenditures. Development intensity, but not research intensity, forecasts increased product market concentration. Investors require higher risk premia for research relative to development activity. It is puzzling that firms do not explicitly disaggregate this disclosure.

The absence of observable innovation data for a firm often leads us to exclude or classify these firms as non-innovators. We assess the reliability of six methods for dealing with unreported innovation using several different counterfactuals for firms without reported R&D or patents. These tests reveal that excluding firms without observable innovation or imputing them as zero innovators and including a dummy variable can lead to biased parameter estimates for observed innovation and other explanatory variables. Excluding firms without patents is especially problematic, leading to false-positive results in empirical tests. Our tests suggest using multiple imputation to handle unreported innovation.

We use the audit industry in China as a laboratory to examine the role of control right allocation on individual auditors’ incentives when balancing coordination and local information acquisition. Relying on proprietary information on audit firm internal control right allocations, our tests reveal that local engagement auditors of more centralized audit firms provide more effort than their decentralized peers. Auditors in centralized firms are also more likely to adjust reported earnings downward and produce better-quality audited financial statements than in decentralized firms. We use Confucian culture and rice farming regions as instrumental variables of preference for centralization and find consistent results. Tests based on changes in centralization due to audit firm mergers also yield similar inferences. Further analyses show that the beneficial effects of centralization are more pronounced when central authority has lower information acquisition costs but are weaker when local clients are complex. Our findings directly inform the classic debate on coordinated versus spontaneous adaptation (Williamson, 1996; Hayek, 1945).

Studies proposing new determinants of corporate innovation include previously identified factors in an ad hoc manner. We find that only a sparse set of recently proposed innovation determinants provide material, independent information about patents and citations. We document that inferences in recent empirical studies often change when we include previously discovered innovation determinants. Commonly used econometric methods, including fixed effects and plausible shocks, do not always mitigate the need to condition on previously identified innovation determinants. Rather than randomly selecting a subset of control variables from prior studies, our analysis offers researchers a framework to consider previously proposed variables.

We find that focal firms’ CEOs respond to increasing repurchases by their publicly disclosed compensation peer (CP) firms by repurchasing more of their own shares. The CP herding effect is stronger for small focal firms or those with substantial stock or option-based compensation than for other focal firms. CPs with prominent CEOs have a more significant impact on the focal firm, and the CP effect is stronger for CPs that are larger, have a longer CP relation, or having also chosen the focal firm as their CP (i.e., two-way CP relation). We establish a causal effect of CP herding on repurchases using several methods, including CEO–pair disconnections. We find that share repurchases of CP firms negatively affect focal firms’ CEO pay while increasing the CP firms’ chance of being used as the focal firm’s CPs in the future. Overall, this paper provides evidence of the impact of compensation benchmarking on corporate payout policies.

Security regulators charge firms with providing material information about intangible investments to outside investors. Among the many firms that do not report their advertising, 25% are in the top decile of observed advertising. We find that relying on managerial judgment for disclosure replaces transparent, regulatory thresholds, such as 1% of sales, with opaque, auditor-specific minimums (e.g., EY vs. Deloitte). Forced and voluntary auditor changes lead firms to alter advertising disclosures. Financial analysts ask executives of hidden advertising firms 65% fewer questions about advertising than their reporting peers. Our final tests demonstrate that hidden advertising is associated with stock mispricing.

We introduce this special issue on Economic Policy Uncertainty (EPU) with a focus on how EPU affects allocative efficiency. We observe that EPU affects the market value of firms in about 37% of Fama–French 30 industries, but leads to lower investments in 90% of them. Allocation decisions in a market economy rely on signals from the capital market, which EPU distorts. This may cause increasing conflicts of interest between managers and investors. We highlight key studies in the EPU literature and then describe each paper in this special issue. We also provide suggestions for future research.

We find that a company's patent filings and citations are not good measures of R&D success or failure, even when compared to firms in the same industry. Instead, our analysis reveals that patent counts reflect the firm's mix of product and process innovation. Intuitively, competitor infringements of process innovation are difficult to detect, suggesting these innovations are better protected via trade secret than patents. We document that non-patenting firms frequently announce valuable new products, even though they emphasize process over product innovation. Insider trading in non-patenting firms generates positive excess returns, while such activity in patenting firms yields ordinary returns. The Uniform Trade Secrets Act induced firms to switch from patenting to non-patenting, leading to lower analysts and institutional following. Financial intermediaries potentially influence the disclosure of innovation rather than research and development success (Aghion et al., 2013; Bena et al., 2017). Overall, our tests indicate that patents and citations signify the nature of innovation rather R&D success.

This essay builds on the exposition by Thomas et al. and focuses on analyzing cause and effect in international business research. We attempt to explain how endogeneity problems occur and why they are so prevalent in international business research in a non-technical fashion. We then discuss the importance of explicitly identifying how the chosen research design best approximates a randomized-controlled experiment. Finally, we provide some guidelines on achieving this goal and emphasize the practices that seem most relevant to JIBS reviewers in evaluating high-quality international business research.

We document a substantial customer complaint gap between stock and mutual financial firms. To assess whether this 21% per year complaint gap stems from complaint-prone customers in stock insurers, we examine state-adjudicated complaint success. To further delineate between customer selection or treatment explanations, we exploit within insurer complaints around random claims (natural disasters) and attention shocks (media scrutiny). Further tests reveal the complaint gap widens with greater competition, near insolvency thresholds, and with more price regulation. Overall, the results are inconsistent with the hypothesis that mutual financial firms exhibit low customer satisfaction, suggesting customers find this a beneficial organizational structure.