Dual-Class Stock Splits and Liquidity

We examine liquidity effects of dual-class stock splits that change firms’ ownership structure from one share one vote to two classes with disparate voting rights. Following dual-class splits, effective spreads, price impacts, and order execution difficulty increase and the investor base decreases significantly for both superiorand inferior-voting shares. In contrast, following a matched sample of regular splits, the investor base increases and order execution improves significantly. Pursuant to the adoption of extreme form of corporate governance and weakened shareholder rights, and consistent with the implied effects of a deteriorating information environment, we find that dual-class splits adversely affect stock liquidity. Dual-Class Stock Splits and Liquidity