Shareholder Protection Research Articles

Shattering the Fetter of Main Markets on the London Stock Exchange: Is It a Benign Start for the Dual-Class Share Structure in the UK?

The dual-class share structure, influenced by the governance perception of government and pressure from institutional investors, was still the forbidden region most time in the UK. However, the bonus of reforms that the London Stock Exchange (LSE) enjoyed was declining swiftly reflected in the number of listed companies and market cap. To promote competition and attraction, the LSE conditionally relaxed the restrictions of dual-class shares on premium listing in 2021, but the effects were faint in practice as founders cannot genuinely achieve the value of dual-class shares. In 2023, the Financial Conduct Authority (FCA) drafted the proposal removing the classification of standard and premium listing to relieve the restrictions of dual-class shares. Although this is a positive attempt, the action is also a double-edged sword that may pass higher risks to public shareholders. This article argues the overall intrinsic value of dual-class shares outweighs its potential risks on corporate governance. Yet, the great shareholder protection cannot be ignored as the reputation of the LSE. The design of dual-class rules should focus on shareholder protection but not influence the accomplishment of value, which can keep a certain resilience to achieve a relatively flexible balance between founders and investors.

Shareholder Proposal Rights: Balance Between Protection of Minority Shareholders’ Rights and Efficiency of Company Decision-Making–Article 115 of PRC Company Law

Shareholder Proposal Rights: Balance Between Protection of Minority Shareholders’ Rights and Efficiency of Company Decision-Making–Article 115 of PRC Company Law

Appraising the New EU Appraisal Regime

In 2019 the European Union adopted the Mobility Directive(Directive (EU) 2019/2121 of the European Parliament and of the Council of 27 November 2019 amending Directive (EU) 2017/1132 as regards cross-border conversions, mergers and divisions OJ L 321, 12 December 2019, pages 1–44), which improved the rules governing cross-border mergers and introduced harmonized rules for cross-border conversions and cross-border divisions. Most notably, the Directive introduced a harmonized regime for the exercise of appraisal rights in case of crossborder mergers. The new rules, which significantly strengthen minority shareholder protection, are in line with the EU’s goal of fostering capital markets. The present article will seek to analyse the new appraisal regime introduced by the Mobility Directive and offer an evaluation of the regime and its shortcomings. Part I of this article will offer an introducing to appraisal rights and appraisal litigation and examine whether long-standing fears regarding abuse of appraisal rights are justified. Part II will set out the new appraisal regime, while Part III will offer an evaluation of the new provisions and discuss their shortcomings.

Protection of Shareholders' Rights and Interests in Company Law: Analysis from Legal Framework to Practical Effectiveness

Protection of Shareholders' Rights and Interests in Company Law: Analysis from Legal Framework to Practical Effectiveness

Implementation of Carbon Trading: Mechanisms of Execution and Legal Protection for Shareholders on the Indonesia Carbon Exchange

This research aims to find out how the trading mechanism on the carbon exchange and legal protection for company shareholders in carbon trading transactions on the Indonesian carbon exchange. Increased global awareness of climate change has prompted many countries, including Indonesia, to adopt more effective mitigation measures. A carbon exchange is a platform for buying and selling carbon credits, which can be obtained by companies that have taken decarbonisation measures. Through carbon trading, investors can be involved in reducing carbon emissions through a scheme that has been provided, namely emission trading or emission offsets. The Indonesian government issued carbon trading regulations and policies as an effort to reduce greenhouse gas emissions globally, and the presence of the Indonesian Carbon Exchange (IDX Carbon) provides positive sentiment for a number of issuers engaged in the environmentally friendly sector. This is because the presence of a carbon exchange opens up opportunities for environmentally friendly companies to increase their revenue by selling carbon credits. The method used in this research is normative juridical with statutory approach and conceptual approach. The results of this research show that shareholders of carbon exchange organisers can only be owned by sui generis institutions, Indonesian citizens, Indonesian legal entities, and/or foreign legal entities that have obtained permission or are under the supervision of the financial services regulator in their home country. In addition, members of the board of directors of the carbon exchange organiser must be domiciled in Indonesia.

Corporate social responsibility (CSR) and earnings management: A structured literature review with a focus on contextual factors

AbstractThe link between corporate social responsibility (CSR) and earnings management represents an attractive empirical research topic in recent years. In view of the heterogeneous research results, the purpose of this structured literature review is to analyze the contextual factors of this complex relationship. We selected 107 quantitative peer‐reviewed archival studies on that topic and explain a possible positive and negative link between CSR and earnings management by the moral licensing hypothesis (principal agent theory) and the moral track hypothesis (stakeholder theory). We focus on firm‐ and country‐related moderator effects as contextual factors. Country‐specific studies are separated in developed (Anglo‐American and Continental European settings) and developing countries (African and Asian settings), code and case law regimes as well as the degree of shareholder protection and legal enforcement. In line with stakeholder theory, we stress that most of the included studies found a negative impact of CSR on earnings management with a focus on CSR performance and accruals‐based earnings management. Other measures, for example, CSR reporting, sub‐pillars of CSR performance, and real earnings management, are inconclusive due to reduced research activity. We do not find any structural changes between developed and developing countries, case and code law regimes, and regarding the strength of shareholder protection and legal enforcement. However, there are clear indications that corporate and country governance strengthens (weakens) the negative (positive) influence of CSR on earnings management. We stress major limitations of prior research and formulate useful recommendations for future research.

Shareholder Protection in International Human Rights and Investment Law

Abstract Foreign shareholders can avail themselves of legal protection under three different legal regimes: diplomatic protection, international investment law and international human rights law. Adopting a historic and comparative approach, this article tracks the faded role of diplomatic protection for protecting shareholders. It identifies the legal instruments that protect shareholders under international investment law and international human rights law, and examines how each regime protects shareholders to assess whether there is a genuine conflict in terms of protection. It uses the nationalization of the British bank Northern Rock as a case study to demonstrate the differing levels of protection each regime provides. Investment law gives shareholders the greatest protection: it protects a wider range of shareholders and, critically, allows shareholders to claim for reflective loss. While there is no genuine conflict, investment law and human rights provide remarkably different levels of protection to shareholders.

The UK and dual-class stock-lite – Is it really even better than the real thing?

Abstract In December 2021, the Financial Conduct Authority (FCA) revised the Listing Rules applicable to companies listed on the London Stock Exchange’s (LSE) Main Market to permit the premium-tier listing of companies with specified weighted voting rights shares structures. The revision, broadly based upon the concept of “dual-class stock,” was premised on a desire to attract innovative, high-growth firms to the LSE. Founders would now be able to list their firms, sell equity and issue further shares for growth without fully relinquishing voting control. However, the FCA was clearly also concerned that an unconstrained dissociation between voting and cash flow rights could incentivize pernicious behavior on the part of founders. Accordingly, specified weighted voting rights shares structure embodies various conditions that restrain a founder’s ability to access the full gamut of advantages that dual-class stock can offer. As a result, specified weighted voting rights shares is more dual-class stock-lite rather than a fully-fledged premium-tier move toward multiple voting rights share structures. Less than two years later, the FCA appears prepared to revisit its approach to dual-class stock. Did the FCA get it wrong with dual-class stock-lite? In this article, each of the conditions attached to the use of specified weighted voting rights shares is scrutinized in the context of whether it appropriately balances the desire of founders for flexibility with public shareholder protection. If the intention was to encourage visionary founders to list their high-growth firms on the LSE, it is understandable that the FCA apparently now has buyer’s remorse.

PROTECTION OF MINORITY SHAREHOLDERS FROM FRAUD IN LIMITED LIABILITY COMPANY DIVIDEND DISTRIBUTION

<p>This research investigates the potential fraudulent actions carried out by majority shareholders and other corporate organs in the context of stock distribution. The primary focus is on the continuity of practices that may disadvantage minority shareholders and undermine the legal protections they should receive. Majority shareholders, often wielding significant influence in the General Meeting of Shareholders (RUPS), may exploit their power to manipulate decisions related to stock distribution. The presence of a quorum that can be achieved without the participation of minority shareholders increases the risk of fraud in this process. The aim of this research is to identify various fraudulent actions that may occur in stock distribution by majority shareholders and related corporate organs. Using a legal analysis approach and case studies, this research also explores ways in which minority shareholders might prevent or respond to fraudulent actions. Furthermore, the research examines the extent to which Law No. 40 of 2007 concerning Limited Liability Companies (UU PT) provides a legal basis to prevent and respond to fraudulent actions in stock distribution. Practical implications of potential fraud are analyzed to provide recommendations that can strengthen legal protections for minority shareholders. This research is expected to contribute to a deeper understanding of the dynamics of fraud in stock distribution, outline the legal challenges faced by minority shareholders, and formulate concrete steps to prevent and respond to such fraud in companies.<em></em></p>

Protection of Minority Shareholders on Decisions of the General Meeting of Shareholders of Public Company in the Form of a Bank

Protection of Minority Shareholders on Decisions of the General Meeting of Shareholders of Public Company in the Form of a Bank

Can a not-for-profit minority institutional investor affect corporate tax avoidance? Evidence from China

ABSTRACT We investigate the impact of the China Securities Investor Service Center (CSISC), a not-for-profit minority institutional investor, on corporate tax avoidance. Employing a difference-in-differences (DID) model based on a sample of Chinese listed companies during 2014–2017, we find that CSISC shareholding reduces corporate tax avoidance. We check this finding’s robustness using alternative measures of tax avoidance, alternative sampling, placebo tests, and parallel trend analysis, and our results still hold. In addition, we find the CSISC’s negative impact on corporate tax avoidance is more pronounced in state-owned enterprises (SOEs), firms with worse internal and external corporate governance, and regions with stricter tax enforcement. Further analyses reveal that the improved information environment is a potential channel through which the CSISC inhibits corporate tax avoidance. This paper enriches the literature on the impact of minority shareholder protection mechanism and the determinants of corporate tax avoidance.

Do financial crises moderate the influence of stakeholder rights protection on M&A activity: The influence of institutional logics and power?

AbstractResearch SummaryM&A represents a contested process of change in control influenced by two contending prevailing institutional logics: shareholder‐centered and labor‐oriented. These logics, whose respective power is influenced by national laws, shape mergers and acquisition (M&A) outcomes. Crises, like systemic financial crises, are periods during which these logics may be altered. This research examines how financial crises affect the positive (negative) relationship between the legal protection of shareholder (labor) rights and M&A activity in a country. Utilizing a dataset from financial services companies across 35 countries from 1990 to 2016, we find that financial crises significantly weaken the effects of both shareholder and labor rights on M&A transactions. Our findings emphasize the role of power dynamics amidst conflicting institutional logics in determining M&A outcomes during both crisis and non‐crisis periods.Managerial SummaryIn the world of mergers and acquisitions, the battle for control is influenced by two major opposing forces: shareholders and employees, with their power rooted in the country's laws. Countries with high protection of shareholder rights witness higher M&A activity compared to those more protective of labor rights. However, drawing from data covering financial services firms in 35 countries from 1990 to 2016, we discovered that financial crises tend to weaken the influence of both shareholder and employee rights on M&A deals. This insight highlights the importance of understanding the differences in the functioning of the M&A market across countries and the shifting power dynamics between shareholders and employees, especially in times of financial uncertainty, for those involved in planning and executing M&A strategies.

ESG Performance and Corporate Default Risk: Do Countries’ Shareholder Protection Levels Affect This Relationship?

This paper explores the nexus between environmental, social, and governance (ESG) performance and corporate default risk. Employing a panel dataset from 1,094 non-financial companies in 21 nations in Europe, corresponding to 9,522 firm-year observations, and using fixed effects estimations, we empirically demonstrate that corporations with higher ESG scores tend to have lower firm default risk. Among the three categories of the ESG score, both the social and the environmental categories participate in this significant association. Moreover, our study presents novel evidence that within ESGs’ ten subcategories, resource use, product responsibility, emissions, human rights, workforce, and CSR strategy significantly reduce firm default risk. Furthermore, country-level shareholder protection moderates the linkage between default risk and ESG performance, such that the negative impact of ESG on default risk is lower for corporations located in nations with higher shareholder protection. Hence, if the countries’ shareholder protection levels are high, stronger ESG would decrease firm default risk by a lesser amount than countries with lower shareholder protection levels. Our findings are robust to alternate variable measurements and alternate methodologies, capturing endogeneity issues.

Reforming private securities litigation in China: Does private enforcement by minority shareholders matter to corporate fraud?

Leveraging the pilot initiative on the diversified resolution mechanism for private securities litigation in China, our study explores the impact of private securities litigation by minority shareholders on corporate fraud. Employing a difference-in-differences analysis over the period 2010–2018, we observe a substantial reduction of 16.4 % in corporate fraud. This effect is particularly pronounced in companies with political connections and those characterized by weaker internal governance structures. Further analysis indicates a diminishing gap in corporate fraud between pilot and non-pilot firms after the nationwide expansion of the pilot program. These findings carry significant policy implications, particularly for emerging markets seeking to enhance protection for minority shareholders.

Legal Protection for Shareholders of Dissolved Insurance Companies

The capital market is the meeting place between supply and demand in trading securities, including stocks, which is proof of ownership of a company in exchange for shareholders' rights to profits or dividends. Although there are two main groups of shareholders, namely majority and minority, both groups have equal status in company ownership. To protect shareholders, capital market and limited liability company laws provide legal protection, including in cases of dissolution of insurance companies. In this research, normative legal methods were used to analyze relevant laws. The results show that shareholders' legal protection is contained in capital market and limited liability company laws, which give shareholders the right to file a lawsuit or request a company inspection if they feel aggrieved. The case of the dissolution of an insurance company by OJK shows that the institution can carry out its supervisory role and guarantee legal protection for shareholders by ensuring the company is responsible for losses incurred.

Do minority shareholder protection laws benefit investors? Evidence from a natural experiment on cross-listed firms

Do minority shareholder protection laws benefit investors? Evidence from a natural experiment on cross-listed firms

Peran Kebijakan Dividen dalam Tata Kelola Perusahaan yang Dikontrol oleh Keluarga

The research aims to examine how family company governance influences dividend policy in the context of minority shareholder protection in 345 observations of family companies listed on the Indonesia Stock Exchange (BEI) during the 2016-2020 period. The results of this research using panel regression (random effects model) show that family ownership concentration has a non-linear relationship to dividend policy, while the level of family involvement through the board of directors and board of commissioners has a statistically negative effect on dividend policy. However, the existence of independent commissioners and lender supervision do not have a significant effect on dividend policy. Overall, this research supports agency theory that family involvement in the company can give rise to agency conflicts with minority shareholders through dividend distribution.

Shareholder Protection in Saudi Companies Law: Assessing Merger and Acquisition Efficacy for Unlisted Joint Stock Companies

This paper explores the legal protections afforded to shareholders of unlisted joint stock companies in Saudi Arabia during merger and acquisition activities. There are significant risks associated with using tools like mergers and acquisitions, including market share loss and decreased profitability for shareholders. Thus, this study aims to analyse the Saudi Companies Law for potential gaps that may affect shareholder legal protections. The researchers primarily use a doctrinal legal methodology to assess the legal framework. This approach provides that the study is based on an examination of the legal framework of Saudi Arabia such as statutes, rules, principles, and cases . It will also apply the analytical approach to evaluate the legal framework's fundamentals, conceptual problems, and practical effects, to make sure that the study finds opportunities for improvement. The Article identifies the differences between unlisted and listed companies concerning document disclosure requirements, lack of the method used for asset valuation, lack of forward-looking information disclosure, the absence of obligatory independent financial reports and unclear definitions of shareholder rights to oppose or exit mergers and acquisitions at fair value. The study found that these areas represent potential gaps that could undermine shareholders of unlisted joint stock, improvements to the law, such as the adoption of independent valuation standards, mandatory financial disclosures, and clearer expression of shareholder rights.

Improving the Performance and Resilience of Family Companies

Abstract The main focus in this study is to understand what factors can shape the performance and resilience of family companies. The research method used is a literature review with a qualitative approach, especially through analysis of relevant and reputable previous research. This research adopts literature study techniques to explore and integrate findings related to the research topic, especially in the context of the object of discussion here being family companies. The findings from this literature review are how improving performance and resilience in companies is significantly influenced by factors such as shareholder protection, crisis management, social capital, and risk management which can play a role in shaping the performance and resilience of family companies. Keywords: Durability, Performance, Family Company

The Role of Cumulative Voting in Protecting Minority Shareholders in Listed Companies

Objective: This article was produced due to the ongoing debate about the protection of minority shareholders in listed companies. It details the challenges faced by minority shareholders and sets out the various methods scholars have identified that can be used to protect minority shareholders. However, some lawmakers believe that cumulative voting is a substantial improvement in the methods commonly used to protect minority shareholders. The article considers what cumulative voting is, how it differs from straight voting rights and what benefits it provides, particularly for minority shareholders. Furthermore, the article considers the effectiveness of cumulative voting as a means of protecting minority shareholders from majority shareholders and delinquent boards of directors. Method: In writing this article, the authors compared the approach used in various countries to protect minority shareholders. They analysed the information gathered in a comparative study process to ascertain the international best practice relating to protecting minority shareholders and cumulative voting rights. At the end of this process, the article concludes with a review of the international best practices and how these may be applied in Kuwait. Result & Conclusion: After considering the theory behind cumulative voting and the application thereof, the conclusion reached is that cumulative voting does not adequately protect minority shareholders. Furthermore, the Kuwaiti legislature has not made cumulative voting mandatory and, as a result, few, if any, companies have adopted this method of voting.