The Challenge of Disproportional Ownership

READINGS IN LATIN AMERICAN COMPANY LAW, F Reyes, ed., National Law Center for Inter-American Free Trade, University of Arizona

35 Pages Posted: 20 Feb 2011 Last revised: 28 Mar 2011

Date Written: February 16, 2011

Abstract

Entrepreneurs in emerging countries often use disproportional ownership structures - set up through dual class shares, pyramids and similar devices - as a measure to retain control over listed firms. These ownership structures have the potential to stimulate economic growth in developing jurisdictions, where institutions are largely defective. At the same time, however, disproportional ownership throws the internal governance of firms into disarray. To make things worse, policy measures drawn up to address this particular problem have yet to produce noticeable results. This paper builds a framework meant to guide policymakers in the process of designing and implementing rules to address the challenge posed by the presence of disproportional ownership in developing countries.

Keywords: Dual class shares, pyramids, control-enhancing mechanisms, private benefits of control, controlling shareholders, corporate law

JEL Classification: G18, G34, G38, K22, K42, L22

Suggested Citation

Mendoza, Jose M., The Challenge of Disproportional Ownership (February 16, 2011). READINGS IN LATIN AMERICAN COMPANY LAW, F Reyes, ed., National Law Center for Inter-American Free Trade, University of Arizona, Available at SSRN: https://ssrn.com/abstract=1762642

Jose M. Mendoza (Contact Author)

Universidad de Los Andes ( email )

Carrera Primera # 18A-12
Bogota, DC D.C. 110311
Colombia

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