Should Every Vote Count? Examining the Influence of Dual-Class Equity on Firm Valuation in Sweden

Abstract

In the ongoing debate on dual-class equity, Sweden sets itself apart as a country where dual-class equity has been legal and prevalent for over a century. Dual-class equity has historically been associated with agency costs, harming firm value. We hypothesize that within the Swedish context of strong governance norms and minority protection, agency costs are considerably mitigated, materializing in a valuation premium for dual-class firms. Over time, we also expect this valuation gap to narrow as benefits recede and agency costs rise. By examining 305 Swedish firms that went public between 2010 and 2019, we find an initial valuation premium for dual-class firms compared to single-class firms, which decreases over time. We account for the endogenous decision of a dual-class listing through a three-stage instrumental variables estimation and estimate the time-varying effect using first-difference regression. These findings imply that within the appropriate context, the advantages of dual-class equity can outweigh the costs, and these factors dynamically converge as firms mature.