Dual class versus single class firms: information asymmetry
I examine information asymmetry in dual class firms in general and when they need (do not need) additional external capital. In general the results show that dual class firms have higher information asymmetry than single class firms. When dual class firms need additional external financing, the gap in information asymmetry between dual class firms and single class firms is narrower. I find that as the need of additional external capital increases, the difference in information asymmetry between dual class and single class firms decreases (consistent with increased disclosures) It decreases, up to a point that there is no difference in information asymmetry with single class firms that also needs additional external capital. When using adverse selection component of bid ask spread, the paper finds that as the need of external financing gets high, dual class firms show lower information asymmetry 1 year before they need additional external capital.