Earnings and Dividend Informativeness when Cash Flow Rights are Separated from Voting Rights

This paper investigates the relative informativeness of earnings and dividends for firms with dual class capital structures. In these firms, the two classes of common stock create a separation between cash flow rights and voting rights. Despite the concentrated ownership in the dual class firms, we find significantly lower informativeness of earnings, in the form of a weaker returns-earnings association, than for single class stocks. We attribute this finding to the reduced management accountability resulting from the separation of cash flow and voting rights. We also find, in general, greater dividend informativeness for the dual class stocks in the form of a significantly stronger returns-dividends relation, although these results are not consistent across all years.