The Anatomy of Dual Class Share Structures: A Comparative Perspective

46 Pages Posted: 14 Sep 2016 Last revised: 22 Jul 2018

See all articles by Junzheng Shen

Junzheng Shen

The University of Hong Kong, Faculty of Law, Students

Date Written: March 2016

Abstract

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.

Suggested Citation

Shen, Junzheng, The Anatomy of Dual Class Share Structures: A Comparative Perspective (March 2016). (2016) 46 Hong Kong Law Journal 477; University of Hong Kong Faculty of Law Research Paper No. 2016/028. Available at SSRN: https://ssrn.com/abstract=2836788

Junzheng Shen (Contact Author)

The University of Hong Kong, Faculty of Law, Students ( email )

Pokfulam Road
Hong Kong
Hong Kong

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