This paper analyses changes in capitalization and control of dual class firms before and after IPO. The results indicate that the combination of a large controlling shareholder with family interests, rather than concentrated ownership per se, leads to dual class capitalization. During the first 15 years post-IPO, voting leverage continuously increases as the dual class firms issue more restricted than superior voting shares. However, control changes are equally frequent for dual and single class firms suggesting that dual class capitalization is not used to unduly entrench management. We document disputes between restricted and superior voting shareholders to illustrate the potential corporate governance problems which are associated with dual class capitalization. As a result of these disputes, investor interest in dual class equity has decreased and there is a recent trend toward reclassification back into single class equity.

ABSTRACT This paper directly tests the hypothesis that upstairs intermediation lowers adverse selection cost. We find upstairs market makers effectively screen out information‐motivated orders and execute large liquidity‐motivated orders at a lower cost than the downstairs market. Upstairs markets do not cannibalize or free ride off the downstairs market. In one‐quarter of the trades, the upstairs market offers price improvement over the limit orders available in the consolidated limit order book. Trades are more likely to be executed upstairs at times when liquidity is lower in the downstairs market.