Taking Voting Leverage and Anti-Director Rights More Seriously: A Critical Analysis of the Law and Finance Theory

Abstract

The “Law and Finance theory” — which offers analytical frameworks to measure the protection of public investors and the quality of corporate governance — has dominated the comparative corporate governance scholarship in the last decade. So far, many proponents and critics have had debates on the relevance of the theory and the implications of the theory’s empirical studies. Several important points in relation to voting leverage and shareholder protection, however, have been highly neglected in these debates. In particular, the significance of the one-share-one-vote (OSOV) and the one-share-multiple-vote (OSMV) has been inappropriately underestimated. In response, this Article explores (1) why OSOV (or OSMV) is a critical component of corporate governance; and (2) how OSMV makes some components of the Anti-Director Rights Index (ADRI) — perhaps, the most significant corporate governance index so far — less meaningful. In addition, this Article offers critical examinations on components of ADRI. Features of a controlling shareholder regime (including controlling minority structure) are closely examined in the context of OSOV/OSMV and the ADRI. To these ends, this Article provides examples, explanations, and evidence from China and Korea in addition to traditional U.S.-based corporate governance theories.

Keywords: aw and Finance, LLSV, Corporate Governance, Investor Protection, Anti-Director Right Index (ADRI), One-Share-One-Vote (OSOV), One-Share-Multiple-Vote (OSMV), Voting Leverages, Controlling Minority Structure (CMS), Stock Pyramiding, Dual-Class Equity Structure, Cross-Ownership

JEL Classification: G30, G38, K22, N40