SUBSTITUTES FOR VOTING-RIGHTS - EVIDENCE FROM DUAL CLASS RECAPITALIZATIONS

We offer additional insights regarding the motivation for dual class recapitalizations and their potential impact on managerial entrenchment. We test the general hypothesis that the loss of shareholder monitoring associated with dual class recapitalizations is replaced by alternative monitoring mechanisms. Evidence is found supporting an increase in the use of outside directors and an increase in the use of debt leverage in response to these recapitalizations. Evidence of increased monitoring by financial analysts and institutional investors also is reported, although the causal link to dual class recapitalization transactions is less clear.