The Case for Mandatory Ownership Disclosure

54 Pages Posted: 18 Feb 2009 Last revised: 8 Apr 2011

Michael C. Schouten

University of Amsterdam, Faculty of Law; Duisenberg School of Finance

Date Written: September 28, 2009

Abstract

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.

Keywords: ownership disclosure, market efficiency, corporate governance, monitoring, hedge fund activism, hidden ownership, empty voting

JEL Classification: G10, G30, G34, G38, K20, K22

Suggested Citation

Schouten, Michael C., The Case for Mandatory Ownership Disclosure (September 28, 2009). Stanford Journal of Law, Business, and Finance, Vol. 15, pp. 127-182, 2010. Available at SSRN: https://ssrn.com/abstract=1327114

Michael C. Schouten (Contact Author)

University of Amsterdam, Faculty of Law ( email )

Amsterdam, 1018 WB
Netherlands

Duisenberg School of Finance ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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