Theory, Evidence, and Policy on Dual-Class Shares: A Country-Specific Response to a Global Debate

Abstract

Dual-class shares have become one of the most controversial issues in today’s capital markets and corporate governance debates. In the past years, academics, regulators, policymakers and stock exchanges from all over the world have been discussing whether companies should be allowed to go public with dual-class shares and, if so, which restrictions should be imposed. After analysing the regulatory approach to dual-class shares existing in several jurisdictions around the world, this article shows that countries seem to have adopted three primary models to deal with dual-class share structures: (i) the imposition of bans traditionally existing in the United Kingdom, Australia and several jurisdictions in Asia, Europe and Latin America; (ii) the permissive model allowing dual-class structures without any significant restrictions, as it happens in the United States, Sweden, and the Netherlands; and (iii) the restrictive approach implemented in Singapore, Hong Kong, Canada, India and Mainland China. It will be argued that, despite the global nature of the debate on dual-class shares, regulators should be careful when analysing foreign studies and approaches since the optimal regulatory model to deal with dual-class shares depends on a variety of local factors. Namely, this article argues that, in countries with sophisticated markets and regulators, strong legal protection for minority investors, and low private benefits of control, regulators should allow companies to go public with dual-class shares with no restrictions or minor regulatory intervention. By contrast, in countries without sophisticated markets and regulators, high private benefits of control, and weak legal protection for minority investors, dual-class shares should be prohibited or subject to higher restrictions. Finally, 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 have been discussing in the past years, but whether dual-class class shares should be allowed and, if so, under which conditions, taking into account the particular features of a country.