Earnings and Dividend Informativeness When Cash Flow Rights are Separated from Voting Rights

We investigate the relative informativeness of earnings and dividends for firms with dual class capital structures. In these firms, two classes of common stock create a separation between cash flow rights and voting rights. Despite the concentrated ownership in the dual class firms, we find significantly lower informativeness of earnings, in the form of a weaker returns-earnings association, than for single class stocks. We attribute this finding to the reduced management accountability resulting from the separation of cash flow and voting rights. While not consistent across all specifications, the results of returnsdividends tests generally show greater dividend informativeness for the dual class stocks, consistent with the view that dividends are particularly salient for non-controlling shareholders when cash flow rights are separated from voting rights.