Public Shareholders 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.

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.

UNDERSTANDING SOLE PROPRIETORSHIP UNDER THE JOB CREATION LAW: A LEGAL HERMENEUTICS PERSPECTIVE

The issue of tender offers has gained prominence due to several high-profile cases involving the takeover of public companies, which have led to significant losses for shareholders, particularly public shareholders. The regulatory framework governing takeovers and tender offers is primarily established by Law No. 8 of 1995 concerning the Capital Market and Government Regulation No. 27 of 1998. The enactment of Law No. 21 of 2011 concerning the Financial Services Authority (OJK) in 2011 marked a significant shift in regulatory oversight, transferring authority over macroeconomic matters, including takeovers and tender offers, from Bank Indonesia to OJK. A notable example is the 2020 takeover of PT Garudafood Putra Putri Jaya Tbk. of PT Mulia Boga Raya Tbk. This study seeks to analyze the regulatory arrangements for tender offers in Indonesia and evaluate the impact of such takeovers on the public companies involved. The research employs normative legal research methodologies with a statutory approach, utilizing both primary and secondary legal materials.

PENGARUH GOOD CORPORATE GOVERNANCE DAN KEPEMILIKAN SAHAM PUBLIK TERHADAP TINGKAT PENGUNGKAPAN CORPORATE SOCIAL RESPONSIBILITY

Companies prioritize CSR out of awareness of social and environmental impacts, as well as to meet societal expectations, reduce reputational risks, and strengthen relationships with stakeholders. However, decisions related to CSR can be influenced by public share ownership, because public shareholders have different preferences from institutional or majority shareholders. This research aims to determine the influence of GCG practices and public share ownership on CSR disclosure. The research method used is quantitative using a survey approach. Data collection was carried out through purposive sampling, from 82 mining companies listed on the Indonesia Stock Exchange in 2021 and 2022, 76 companies were sampled. Multiple linear regression tests and simple linear regression tests are used as data analysis methods. Linear regression analysis shows that there is a positive and significant influence of audit committee size and ownership on all types of CSR, while the composition of public ownership has a significant negative influence. The composition of the independent board of commissioners and institutional ownership do not have a significant effect. These results indicate the need to consider GCG structure and share ownership in an effort to increase Corporate Social Responsibility disclosure.

Implementation of Forced Delisting Mechanism in Go-Private Corporate Action in Indonesia: Is It Right?

Purpose: The research focuses on studying the implementation of the forced delisting mechanism in go-private corporate actions in Indonesia by comparing studies with other countries, namely the United States and Singapore. Theoretical framework: The research is projected to produce an ideal concept for implementing the forced delisting mechanism in go-private corporate actions in Indonesia. Methods: This research is normative legal research. The research approach used is statutory, a conceptual approach, a fact approach, and a comparative approach. Results and Conclusion: The study results indicate that there are no specific arrangements for implementing the forced delisting mechanism in go-private corporate actions in Indonesia. The results also show that there is no means for comparative studies on implementing the forced delisting mechanism in go-private corporate actions in the United States and Singapore. Research implications: The ideal concept focuses on the accommodation of special facilities for disposing of shares of companies that carry out forced delisting. Originality/value: Special arrangements and special listing facilities for forced delisting shares aim to facilitate the implementation of repurchases and prevent potential material losses to retail investors and the company's public shareholders.

Private Loan Disclosure Covenants and Public Management Guidance

Prior research provides little evidence about whether the information demands of private lenders affect the information environment of borrowers’ public shareholders. Using a covenant in loan contracts, lenders can require borrowers to periodically provide projected financial statements. We examine borrowers’ voluntary disclosure of prospective financial information (“management guidance”) to the public after being subject to the disclosure covenant. We find that the disclosure covenant is associated with more frequent management guidance. This relation is attributable to borrowers increasing nontraditional earnings guidance and non-earnings financial guidance. In falsification tests, we find that a covenant requiring borrowers to provide monthly historical financial information is not associated with management guidance and that the prospective financial information disclosure covenant is not associated with voluntary disclosure of nonfinancial information. Our results suggest that a firm’s contractual obligation to provide projected financial information to private lenders increases the quantity and breadth of its voluntary guidance to public shareholders.

Advancing public interests through state ownership; the case of Port of Rotterdam

This paper addresses the effects of state ownership on decisions of port development companies, through a case study of Port of Rotterdam (PoR). This issue is relevant, given the economic impact of port development and the important role of ports in the transition towards a more sustainable economy. The insights from this case study thus can be useful for shaping port (governance) reform. The paper reviews the rationale for state ownership of the port development company, and describes the case of PoR, focused on the public interests that the public shareholders aim to promote through ownership, and mechanisms through which the consideration of the public interests is incorporated in PoR’s decisions. The following conclusions are drawn. First, the two public shareholders of PoR (the city of Rotterdam and the Dutch state) have made an explicit choice to ‘permanently’ use state ownership to achieve public interests. Second, PoR’s shareholders have identified specific public interests and have developed specific mechanisms to secure that PoR takes these public interests into account in decision-making. Third, there are clear indications that PoR’s decisions indeed have advanced the public interests as identified by the shareholders.

Perlindungan Hukum bagi Pemegang Saham Publik Akibat Pengenaan Suspensi Perdagangan Saham Emiten Oleh Bursa Efek Indonesia

The formulation of this study; a) What is the result of the suspension of trading shares of PT Falmaco Nonwoven Industri Tbk by the Indonesia Stock Exchange? This type of research belongs to normative legal research methods (normative juridical). Normative juridical research is legal research that puts law as a building system of norms. Normative legal research is also legal research conducted by researching using library materials or secondary data. In the event of suspension of PT Falmaco Nonwoven Industri Tbk due to late submission of financial statements and not paying fines, it can cause losses to shareholders, especially public shareholders who do not have control over a company. In the event of this loss, OJK, whose authority is supervision, inspection and protection, can be present as a legal step that can be taken by shareholders who are consumers in the financial services sector. OJK is present as a place to complain about things that are not reached.

The Simultaneous Effect Dividend Policy and Debt Policy

This study aims to examine dividend policies for companies listed on the Indonesia Stock Exchange during the 2018-2022 period. Agency theory argues that dividend policy can reduce agency costs and reduce agency conflicts. The percentage of institutional ownership is used as a proxy for agency costs and can be used as a mechanism for lowering agency conflict. The total sample is 44 companies listed on the IDX. The estimation uses the pooling data method and 3SLS. This research develops a simultaneous system econometric model. This study argues that high institutional ownership leads to higher agency conflict, as management and institutions collaborate to prioritize their interests over other shareholders. Conversely, low institutional ownership leads to disputes between management, low institutional, and public shareholders. The entrenchment argument predicts higher conflict in high institutional ownership, while the convergence argument predicts common agency conflict in common institutional ownership.

Technical Note—Optimizing Risk-Balancing Return Under Discrete Choice Models

Similar to individual investors, firms balance revenue or profit risk with the expected return on investment. A stable cash flow is required to satisfy private and public shareholders or to maintain solvency. Product prices impact both the expected demand for the products and the volatility of the demand, and consequently a firm’s revenue or profit risk. This paper presents models and results that demonstrate how risk sensitivity can inform pricing strategy. The authors show that a firm’s distaste for risk not only causes the firm to discount its products in exchange for lower profit volatility, but also reduces the firm’s incentive to price differentiate among the products. The findings also provide insight into how firms with varying degrees of risk aversion may price products of different quality and how this pricing strategy affects product market share.

Цифровизация результатов аудита как механизм повышения прозрачности аудиторской деятельности

The article is focused on the issue of creating a high level of qualification of audit agreements based on the results of verifying the authenticity of the accounting (financial) value of socially significant organizations, including public shareholders of companies. The checks of the elements of audit access to other services are described, which allows to create a transparent base for monitoring the quality of the audit in the external control process.

TINJAUAN HUKUM PERDATA TERHADAP KEBIJAKAN KONSINYASI BERDASARKAN UNDANG-UNDANG RI NOMOR 2 TAHUN 2012 TENTANG KEWENANGAN NEGARA TERHADAP PENGADAAN TANAH UNTUK KEPENTINGAN UMUM

Land procurement for public interest based on Law No. 2 Year 2012 Activities held land by giving compensation decent and fair for those who are eligible, the land acquisition is an activity undertaken by the private sector and the government in order to get a piece land allocated for the implementation of a specific development. This research is descriptive analysis with normative juridical approach, ie an approach to legislation related to land acquisition, so as that at issue in this study is how the rule of law to the public shareholders Certificate of Ownership (SHM) is a land in the consignment policy associated with state authority in the procurement of land for public purposes under Law No. 2 In 2012, What are the factors inhibiting the provision of land and how to overcome obstacles facing the government in the procurement of land for public purposes and how the legal protection of individuals (people) who have policies consignment on a piece of land without their prior agreement. Based on research that land procurement for public interest implemented by the government must have legal certainty for holders of land rights, the rule of law in this case means that the government can not impose its authority to waive or revoke ownership rights of a holder of rights on land allocated for public use without first taking care of right holders in terms of social aspects and of the economic aspect, so that the individual holders of land rights can extend their life better than before its release or revoked, then the government must be able to guarantee legal protection for individuals/ communities experiencing problems law, particularly in the context of land acquisition for public purposes, which individuals/ communities of the poor do not have the power to block any government action that seemed to rape their human rights.

Innovations in IPO Deal Structure: Do Up-C IPOs Harm Public Shareholders?

This paper examines an innovation in capital formation that has spurred contentious debate: the Umbrella Partnership Corporation (“Up-C”) IPO. Advisors and underwriters argue that the Up-C deal structure is a driver of post-IPO value and, thus, is a value-enhancing means of raising capital that may be one solution to concerns regarding the drop in the number of publicly traded companies. Consistent with these claims, recent research suggests that organizing soon-to-be public businesses as pass-through entities (as is the case for Up-Cs) leads to superior future performance. Yet, broadening the analysis to consider abnormal stock performance and post-IPO litigation of a larger and more recent sample of exclusively Up-C IPOs, we conclude just the opposite. While the Up-C deal structure increases IPO valuations and predicts positive post-IPO operating performance, the return performance of Up-C IPOs indicates that Up-C deals harm public shareholders. Further, despite their superior earnings performance, Up-C IPOs face a significantly higher rate of post-IPO litigation as compared with non-Up-C IPOs. Because IPO investors seemingly do not anticipate the myriad ways in which the Up-C deal structure might facilitate opportunism by pre-IPO owners, they frequently turn to litigation as an ex-post settling-up mechanism. Consequently, our paper offers the first empirical evidence of downsides associated with the Up-C deal structure for public shareholders and, in so doing, affords the rarity of having academic evidence lead (as opposed to respond to) a controversial debate. This paper was This paper was accepted by Victoria Ivashina, finance. Funding: The authors gratefully acknowledge the financial support of the NYU Stern School of Business, the J. Reuben Clark Law School, and the Marriott School of Business. Supplemental Material: Data are available at https://doi.org/10.1287/mnsc.2022.4454 .

Vedanta Ltd. – attempts to go private

Learning outcomes On completion of analysis of this case, students would be able to: appreciate the context of a typical delisting decision of a public company that is part of a large business group; analyze the complex nature of the relationships among the promoter shareholders, minority shareholders, government-controlled financial institutions, independent directors and executive directors in such a situation of transfer of value; and develop the best possible course of action for the promoters, independent directors and public shareholders, keeping into consideration the principles of corporate governance and the objective of shareholders’ wealth maximization. Case overview/synopsis The case presents an opportunity to examine the corporate restructuring and governance issues associated with the delisting attempt of India-based mining company Vedanta Ltd., by its London-based parent company, Vedanta Resources. The case focuses on the conflict of interests between the promoters of a business group and the public shareholders of a subsidiary, and the pivotal roles independent directors and proxy advisory firms play in supporting the public shareholders. Complexity academic level The case can be discussed in a graduate-level corporate strategy course that deals with restructuring and governance issues in companies, especially large group companies. It can also be discussed in a course of corporate governance where students have the opportunity to understand the potential conflict between promoters and other shareholders, and the moderating roles the independent directors and institutions may play in resolving such conflicts. Supplementary materials Teaching notes are available for educators only. Subject code CSS 11: Strategy.

Propping today, tunnelling tomorrow: expropriation motives and firm performance

The purpose of this paper is to examine propping and tunnelling in group firms which have booked losses and performed badly in past years. We offer partial explanation to the group survival puzzle; that under institutional motivations such as avoidance of delisting and refinancing risks, group firms witness tunnelling subsequent to propping and thereby expropriate public shareholders in the long run. Our results confirm that tunnelling happens typically after prior propping up. Additionally, the paper analyses the effect of propping and tunnelling on current and future operating performance respectively. The findings exhibit that propping affects the current year's operating performance of the firm positively, while tunnelling affects the performance in future years. The findings of this study will help public shareholders to better assess risk and return while investing in group firms. Also, the study can be used as a reference by regulatory bodies when making policies to curb such expropriating activities.

UP THE HILL AND DOWN AGAIN: CONSTRAINING DUAL-CLASS SHARES

AbstractThe headline recommendation of Jonathan Hill's 2021 UK Listing Review was that dual-class shares structures be permitted on the London Stock Exchange's premium tier. The aspiration was to encourage more high-quality UK equity listings, particularly of high-growth tech-companies, for which dual-class shares are especially beneficial. Dual-class shares allow founders to list their companies, and retain majority-control, while holding significantly less of the cash-flow rights in the company. However, in the UK, dual-class shares are usually discussed in qualified terms, in an attempt to placate sceptical institutional shareholders. Using the UK Listing Review as a platform, this article explores the constraints commonly proposed to be attached to dual-class shares, and argues that, although it is important to protect public shareholders, constraints must not be too severe. A balance must be respected, otherwise UK initiatives to relax rules on dual-class shares could deter the very companies they are intended to attract.

Perlindungan Hukum Terhadap Pemegang Saham Minoritas Dalam Undang-Undang Perseroan Terbatas

The interests of minority shareholders in the company often conflict with a sense of justice and legal protection. This normative research discusses the issue of legal protection for minority public shareholders and the principle of justice in legal protection for minority shareholders. The legal protection of minority shareholders includes the right to propose a GMS (Article 79 paragraph 2 letter a), sue the board of directors (Article 97 paragraph 6) and the board of commissioners (Article 114 paragraph 6), request a company examination (Article 138 paragraph 3 letter a), and propose the dissolution of the company (Article 144 paragraph 1). The Company Law protects the rights of minority public shareholders based on the silent majority principle. The principle of justice to protect minority public shareholders is derived from the principle of distributive justice, the voting rights of minority shareholders are proportional to the portion of shares paid up, even though the equality is not equal. Judges' considerations regarding the legal protection of minority public shareholders are based on Article 138 paragraph (3) letter a of the Company Law, at least 1/10 of the total shares. Minority public shareholders are eligible to apply for an SLJ examination to the court. So that the minimum requirement of 1/10 of the total shares becomes a guideline to protect the rights of minority shareholders and as a derivation of the principle of distributive justice

The Law Governing Related Party Transactions in Canada: Rules, Standards and Regulatory Scrutiny

Canada is an interesting laboratory to study the law governing related party transactions because of the distinctive features of its capital markets and its regulatory landscape. The ownership structure of Canadian corporations resemble more closely those of continental Europe and South East Asia than those of the United States. Further, deviation from the one share/one vote rule is widespread. Thus, the primary corporate governance problem relates to the risk that dominant shareholders extract private benefits of control at the expense of the corporation and its public shareholders. As for regulation, publicly-traded corporations are subject to provincial corporation and securities laws, which are largely harmonized at the national level. The paper reviews the law governing RPT in Canada, which is the product of corporate law and securities regulation. Although they are not prohibited, conflict of interest transactions are regulated by an intricate set of ex ante rules and ex post standards of review that impose procedural and substantive requirements. Specifically, the paper shows that the following fundamental questions lead to many answers: 1) Who is charged with the screening of RTP?; 2) How does the screening work?; 3) When does it operate? Against this backdrop, the paper analyses the role of procedural safeguards and substantive review by looking at two conflicting cases regarding the impact of majority of the minority approval. It also presents data on the use of majority of the minority approval by reviewing 79 transactions between 2013 and 2018 where this procedural safeguard was mandated. The anecdotal and empirical discussion serves to put majority of the minority approval in perspective with respect to its protective function. The analysis closes with a discussion of a recent initiative on the part of Canadian securities regulators, which translates into a heightened involvement in the review and oversight of conflict of interest transactions. On the one hand, this initiative may buttress the effectiveness of majority of the minority approval by reinforcing the procedural safeguards. On the other hand, it may have unintended effects on the protection of minority shareholders.

SPAC Governance: In Need of Judicial Review

This paper analyzes the relationship between the economic structure of a SPAC, its corporate governance, and judicial review of SPAC mergers (or deSPACs). The core challenge for SPAC governance is to address the inherently conflicting interest of a sponsor and public shareholders. SPACs respond to this conflict by holding proceeds of their IPOs in trust and by granting public shareholders a right to redeem their shares for a pro-rata portion of that trust. For the redemption right to be effective, however, a SPAC's board must provide shareholders with accurate and complete information regarding the merger. Doing so may conflict with the interests of the SPAC’s sponsor, which will profit substantially even in a deal that is bad for SPAC investors. The independence of a SPAC's board is thus necessary for a SPAC to be governed in the interest of shareholders. Unfortunately, SPAC directors often have financial ties to a sponsor and are compensated in ways that align their interests with those of the sponsor. Where this is true, and where SPAC shareholders file suits alleging a breach of the duties of loyalty and candor, a court should affirm that the board has a duty to provide shareholders with the information they need to exercise their redemption right, and review the conduct of the sponsor and the board under an entire fairness standard.

Up the Hill and Down Again: Dual-Class Stock and the UK Listing Review

The final recommendations of Jonathan Hill’s UK Listing Review were published on 3 March 2021. The headline recommendation was that dual-class stock should be permitted on the premium-tier of the London Stock Exchange. The aspiration is to encourage more high-quality UK equity listings, particularly of high-growth tech-companies, for which dual-class stock is especially beneficial. Dual-class stock allows founders to list their firms, and retain majority-control, while holding significantly less of the cash-flow rights in the company. However, in an attempt to protect and placate institutional shareholders, who are generally sceptical of dual-class stock, various conditions have been recommended. This article finds that those conditions comprise a curious mix, some of which are too relaxed and do not substantially protect public shareholders, and some of which are too severe and could deter the very firms the proposals are intended to attract, resulting in dual-class stock in name but not in substance.