An agency theory explanation of SEO underperformance: Evidence from dual-class firms

► We find that market responds more adversely to SEO announcement as the divergence between insiders' voting and cash flow rights increases. ► We find that firms experience worse three year abnormal returns following SEOs as the divergence between insiders' voting and cash flow rights increases. ► We find that the zero-cost investment strategy that bought firms that had below median value of the divergence between insiders' voting and cash flow rights and sold firms that had above median value of the divergence between insiders' voting and cash flow rights would have earned positive abnormal returns during the sample period.