The Case for Mandatory Ownership Disclosure
Michael C. Schouten
University of Amsterdam, Faculty of Law; Duisenberg School of Finance
September 28, 2009
Stanford Journal of Law, Business, and Finance, Vol. 15, pp. 127-182, 2010
The use of equity derivatives to conceal economic ownership of shares ("hidden ownership") is increasingly drawing attention from the financial community, as is the exercise of voting power without corresponding economic interest ("empty voting"). Market participants and commentators have called for expansion of ownership disclosure rules, and policymakers on both sides of the Atlantic are now contemplating how to respond. Yet, in order to design appropriate responses it is key to understand why we have ownership disclosure rules in the first place. This understanding currently appears to be lacking, which may explain why we observe divergent approaches between countries. The case for mandatory ownership disclosure has also received remarkably little attention in the literature, which has focused almost exclusively on mandatory issuer disclosure. Perhaps this is because most people assume that ownership disclosure is a good thing. But why is such information important, and to whom? This paper aims to answer these fundamental questions, using the European disclosure regime as an example. First, the paper identifies two main objectives of ownership disclosure: improving market efficiency and corporate governance. Next, the paper explores the various mechanisms through which ownership disclosure performs these tasks. This sets the stage for an analysis of hidden ownership and empty voting that demonstrates why these phenomena are so problematic.
Number of Pages in PDF File: 54
Keywords: ownership disclosure, market efficiency, corporate governance, monitoring, hedge fund activism, hidden ownership, empty voting
JEL Classification: G10, G30, G34, G38, K20, K22
Date posted: February 18, 2009 ; Last revised: April 8, 2011
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