Abstract

We examine the impact of dual class share structures on the parameters of debt issuance. We find that, as compared to single class firms, the debt in dual class firms is associated more use of covenants especially performance based covenants, and is more likely to be secured. In addition, the impact of dual class share structure differs based on the severity of the agency costs of debt. We find that many of these issuance parameters are differently affected for large, profitable and low leverage firms (which face lower agency costs of debt) as opposed to small, less profitable and highly levered firms. These results are robust when we control the endogeneity of ownership structure and simultaneous changes in these issuance parameters. These results suggest that dual class share structures exacerbate the conflicts between controlling shareholders and lenders. However, the link between dual class share structures and debt issuance is not as clear for other issuance parameters such as the maturity and interest cost of debt.