The Anatomy of Dual Class Share Structures: A Comparative Perspective
(2016) 46 Hong Kong Law Journal 477
46 Pages Posted: 14 Sep 2016 Last revised: 22 Jul 2018
Date Written: March 2016
To delineate the merits and demerits of dual class share structures, we should compare them to dispersed ownership structures with control contestability, concentrated ownership structures, and other control-enhancing mechanisms. Dual class structures facilitate long-term business strategies, firm-specific investments, equity financing and risk-taking, and they are simple, transparent and stable; but they insulate corporate controllers from shareholder monitoring, proxy contests and hostile takeovers, exacerbate tunnelling and shirking problems, and enable corporate controllers to achieve an extreme voting-cash flow rights divergence and to infringe existing shareholders’ voting rights. Law can deal with most disadvantages of dual class structures, except shirking problems. Policy-makers should ensure that law provides shareholders with sufficient protection and then make a choice between dual class structures’ benefits and constraints on shirking derived from concentrated corporate ownership.
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