Theory, evidence, and policy on dual-class shares: A country-specific response to a global debate
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. |