Publication Type

Journal Article

Version

publishedVersion

Publication Date

9-2021

Abstract

Dual-class shares have become one of the most controversial issues in today´s capital markets and corporate governance debates around the world. Namely, it is not clear whether companies should be allowed to go public with dual-class shares and, if so, which restrictions (if any) should be imposed. Three primary regulatory models have been adopted to deal with dual-class shares: (i) prohibitions, existing in countries like the United Kingdom, Germany, Spain, Colombia, or Argentina; (ii) the permissive model adopted in several jurisdictions, including Canada, Sweden, the Netherlands, and particularly the United States; and (iii) the restrictive approach recently implemented in Hong Kong and Singapore. This paper argues that, despite the global nature of this debate, regulators should be careful when analysing foreign studies and approaches, since the optimal regulatory model to deal with dual-class shares will depend on a variety of local factors. Namely, it will be argued that, in countries with sophisticated markets and regulators, strong legal protection to minority investors, and low private benefits of control, regulators should allow companies going public with dual-class shares with no restrictions or minor regulatory intervention (e.g., event-based sunset clauses). By contrast, in countries without sophisticated markets and regulators, high private benefits of control, and weak legal protection to minority investors, dual-class shares should be prohibited or subject to higher restrictions (e.g., time-based sunset clauses and stringent corporate governance rules). Intermediate solutions should be adopted for countries with mixed features. Therefore, the key question to be addressed from a policy perspective is not whether companies should be allowed to go public with dual-class shares, as many authors and regulators seem to be discussing, but whether dual-class class shares should be allowed and, if so, under which conditions, taking into account the particular features of a country.

Keywords

Dual-class shares, Corporate governance, Investor protection, Regulatory competition, Founders, IPOs

Discipline

Banking and Finance Law

Research Areas

Corporate, Finance and Securities Law

Publication

European Business Organization Law Review

Volume

22

Issue

3

First Page

475

Last Page

515

ISSN

1566-7529

Identifier

10.1007/s40804-021-00212-4

Publisher

Springer Verlag (Germany)

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1007/s40804-021-00212-4

Download

Share

COinS