Equity Markets, Valuation, and Analysis

CHAPTER 2Ownership Structure and Stock Classes

Christopher J. Barnesler

Equity Research, Deutsche Bank AG

Ehsan Nikbakhtler

C. V. Starr Distinguished Professor of Finance and International Financial Services

Frank G. Zarb School of Business, Hofstra University

Andrew C. Spieler

Robert F. Dall Distinguished Professor of Business

Frank G. Zarb School of Business, Hofstra University

INTRODUCTION

A commonly held view is that all common stock issues are the same. Although overwhelmingly true for most companies, several exceptions exist to this concept. The most apparent exception is multiple-class common stock, more commonly known as dual-class stock, which offers shareholders in one class of stock superior voting rights relative to shareholders in a separate class.

Before comparing single-class and dual-class common stock, single-class common stock can be divided into various structures. For example, besides the primary listing of a single class of common stock, a company may cross-list its shares on stock exchanges in other countries. Depositary banks may create an analogous share for investors to partake in ownership of a foreign listed company. Cross-listings and depositary receipts each facilitate investment in corporations whose primary listings are in other countries. Although cross-listings represent a direct listing on the foreign stock exchange, depositary receipts are indirect ownership vehicles, where an intermediary institution holds shares directly and offers receipts ...