Ownership Dispersion and the London Stock Exchange’s 'Two-Thirds Rule': An Empirical Test

47 Pages Posted: 27 Jun 2012 Last revised: 18 Jul 2012

See all articles by Brian R. Cheffins

Brian R. Cheffins

University of Cambridge - Faculty of Law; European Corporate Governance Institute (ECGI)

Dmitri Koustas

University of California, Berkeley - Department of Economics

David Chambers

University of Cambridge - Judge Business School, Department of Finance & Accounting

Date Written: June 27, 2012

Abstract

In the UK, in contrast to most other countries, a hallmark of corporate governance is a separation of ownership and control. There is evidence suggesting that this pattern may have been the norm in Britain as far back as the late 19th century. This paper investigates the extent to which law, in the form of a London Stock Exchange listing rule that prohibited the quotation of a class of securities unless two-thirds of the securities quoted had been subscribed for by and allotted to the public, contributed to this outcome. This paper tests the impact of the two-thirds rule by analysing for domestically based companies that carried out initial public offerings between 1900 and 1911 data compiled from prospectuses, a UK investors’ guide and documents filed in accordance with UK companies legislation. The results indicate that the two-thirds rule did not influence ownership and control to the extent that might have been anticipated.

Keywords: law and finance, London Stock Exchange, initial public offerings, securities regulation

JEL Classification: G38, K22, N43

Suggested Citation

Cheffins, Brian R. and Koustas, Dmitri and Chambers, David, Ownership Dispersion and the London Stock Exchange’s 'Two-Thirds Rule': An Empirical Test (June 27, 2012). University of Cambridge Faculty of Law Research Paper No. 17/2012. Available at SSRN: https://ssrn.com/abstract=2094538 or http://dx.doi.org/10.2139/ssrn.2094538

Brian R. Cheffins (Contact Author)

University of Cambridge - Faculty of Law ( email )

10 West Road
Cambridge, CB3 9DZ
United Kingdom
+44 1223 330084 (Phone)
+44 1223 330055 (Fax)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Dmitri Koustas

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

David Chambers

University of Cambridge - Judge Business School, Department of Finance & Accounting ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom
44 (0)1223 339700 (Phone)

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