China and the Rise of Law-Proof Insiders

56 Pages Posted: 10 Dec 2020 Last revised: 22 Feb 2021

See all articles by Jesse M. Fried

Jesse M. Fried

Harvard Law School; European Corporate Governance Institute (ECGI)

Ehud Kamar

Tel Aviv University - Buchmann Faculty of Law; European Corporate Governance Institute (ECGI)

Date Written: February 15, 2021

Abstract

Alibaba, the e-commerce giant that completed a record-setting IPO in the United States in 2014 and was valued at over $700 billion in early 2021, is one of hundreds of Chi-na-based firms listed in the United States whose controlling insiders are largely law-proof: the corporate and securities laws governing these firms are unenforceable because the firms’ insiders, records, and assets are in China. This casts doubt on the claim that foreign firms list in the United States to bond insiders to tough securities law. In fact, for China-based firms, listing in the United States but not in China effectively insulates insiders from any securities law. Yet U.S. securities law not only allows these firms to list, but also requires them to dis-close less than domestic firms. U.S. securities law thus favors foreign entrepreneurs and likely harms U.S. investors. We suggest ways to reduce this bias and better protect U.S. investors. More generally, we argue that enforceability is key to corporate governance.

Keywords: China, Corporate Governance, Securities Law, Corporate Law, Enforcement, Cross-Listing, Bonding

JEL Classification: G34, G38, K22, M41, M42, M48

Suggested Citation

Fried, Jesse M. and Kamar, Ehud, China and the Rise of Law-Proof Insiders (February 15, 2021). European Corporate Governance Institute - Law Working Paper 557/2020, Available at SSRN: https://ssrn.com/abstract=3740223 or http://dx.doi.org/10.2139/ssrn.3740223

Jesse M. Fried (Contact Author)

Harvard Law School ( email )

1575 Massachusetts
Griswold Hall 506
Cambridge, MA 02138
United States
617-384-8158 (Phone)

HOME PAGE: http://www.law.harvard.edu/faculty/directory/10289/Fried

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Ehud Kamar

Tel Aviv University - Buchmann Faculty of Law ( email )

Ramat Aviv
Tel Aviv, 69978
Israel
972-3-6407301 (Phone)

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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