Traditionally, fund managers cast votes on behalf of fund investors. Recently, there is a shift towards "pass-through voting," with fund managers offering their investors a choice: delegate their votes to the fund or vote themselves. We develop a theory of delegation of voting rights to study the implications of such voting choice. If investors have heterogeneous preferences, voting choice may decrease investor welfare because investors retain voting rights excessively, prioritizing their preferences over information. If investors have heterogeneous information, voting choice generally improves investor welfare. However, it may decrease fund managers' information collection effort, resulting in less informed voting outcomes.

This paper studies dynamic effects of dual-class shares on incentives and corporate agency costs theoretically and empirically. Dual-class shares provide ex ante incentives for firm-specific investments by protecting the entrepreneur from being fired in the future. As dual-class firms mature, private benefits increasingly erode the value added from the heightened incentives. Using new panel data on US public firms’ voting rights spanning 1971–2020, we show that: (i) the voting premium, a measure of private benefits, increases over firm maturity; (ii) announcement returns are positive for young single-class firms switching to dual-class shares but less so for mature single-class firms switching; (iii) after firms switch to dual-class shares, their valuations increase before shrinking over time; (iv) after switching to dual-class shares, firms become more innovative; and (v) mature dual-class firms’ investment and employment changes are less sensitive to q. As a whole, the theoretical and empirical results are consistent with treatment effects of dual-class shares rather than selection, and provide new policy implications.

The increasing adoption of dual-class shares (DCS)—an ownership structure that gives corporate insiders greater voting power than other shareholders—among newly listed companies has raised significant governance concerns. We investigate the decision to adopt the DCS structure and its value implications in the recent U.S. IPOs. Using founder cultural traits and Silicon Valley law firms as instrumental variables, we find significant post-IPO outperformance by firms adopting DCS with sunset clauses, especially those stipulating the termination of DCS after founders’ incapacitation, compared to non-DCS firms and DCS firms without sunsets. This outperformance is more pronounced in firms for which technology is more crucial, and is related to greater operating efficiency and innovation outputs. However, sunset adoption reduces executives’ risk-taking incentives, leading to lower innovation quality. In an event study around Hong Kong’s regulatory reform allowing DCS listings with compulsory incapacity-based sunset clauses, we confirm that DCS-cum-sunset creates the most value for investors.