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

2021 ◽  
Vol 80 (3) ◽  
pp. 515-551
Author(s):  
Bobby V. Reddy
Keyword(s):  
Cash Flow ◽  
High Growth ◽  
High Quality ◽  
Majority Control ◽  
Dual Class Shares ◽  
The Uk ◽  
Cash Flow Rights ◽  
Dual Class ◽  
Institutional Shareholders ◽  
The Hill

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.

scholarly journals FINDING THE BRITISH GOOGLE: RELAXING THE PROHIBITION OF DUAL-CLASS STOCK FROM THE PREMIUM-TIER OF THE LONDON STOCK EXCHANGE

2020 ◽  
Vol 79 (2) ◽  
pp. 315-348
Author(s):  
Bobby V. Reddy
Keyword(s):  
Cash Flow ◽  
Stock Exchange ◽  
High Growth ◽  
London Stock Exchange ◽  
Majority Control ◽  
Uk Government ◽  
Policy Priority ◽  
The Uk ◽  
Cash Flow Rights ◽  
Dual Class

AbstractThere is a dearth of British tech-companies listing on the London Stock Exchange (LSE), and the LSE lacks a large, innovative tech-company such as Google. The UK Government, concerned as to the loss of UK tech-companies to foreign acquirors, views the encouragement of UK tech-firm listings as a policy priority. Dual-class stock, currently prohibited from the LSE Main Market's premium-tier, allows founders to list their firms, and retain majority-control, while holding significantly less of the cash-flow rights in the company. This article will broach the potential for dual-class stock to attract UK tech-company listings, and explore the benefits that dual-class stock can engender for UK tech-companies and their public shareholders. The risks of dual-class structures will also be discussed, but it will be shown that in a UK regulatory context, in relation to high-growth tech-companies, the risks may not be as severe as presumed, and easily moderated through judicious controls.

Dual-Class Shares and Audit Pricing: Evidence from the Canadian Markets

2008 ◽  
Vol 27 (2) ◽  
pp. 199-216 ◽  
Author(s):  
Samer Khalil ◽  
Michel L. Magnan ◽  
Jeffrey R. Cohen
Keyword(s):  
Cash Flow ◽  
Positive Association ◽  
Audit Fees ◽  
Control Rights ◽  
Audit Pricing ◽  
Audit Risk ◽  
Dual Class Shares ◽  
Cash Flow Rights ◽  
Dual Class ◽  
And Control

SUMMARY: This paper investigates whether audit fees vary with the wedge between cash flow rights and control rights arising from the presence of dual-class share structures. Dual-class shares exist in firms having two or more classes of shares with disproportionate voting rights. They affect audit fees through their effect on the supply for audit services. External auditors conduct wider (narrower) scope audits depending on whether dual-class shares increase (decrease) audit risk and/or auditor business risk. Wider (narrower) scope audits are more (less) costly for the auditors and for their clients. This paper documents a positive association between audit fees and the wedge between cash flow rights and control rights in a sample of Canadian firms during 2004. It extends current research by investigating whether dominant shareholdings affect audit pricing, and by examining audit pricing in Canada over a time period that witnessed significant changes in corporate governance.

Founders without Limits

2021 ◽  
Author(s):  
Bobby V. Reddy
Keyword(s):  
Stock Exchange ◽  
High Growth ◽  
Global History ◽  
Public Markets ◽  
The Us ◽  
History Of ◽  
The Uk ◽  
Dual Class ◽  
Blue Chip

Big Tech has flourished on the US public markets in recent years with numerous blue-chip IPOs, from Google and Facebook, to new kids on the block such as Snap, Zoom, and Airbnb. A key trend is the burgeoning use of dual-class stock. Dual-class stock enables founders to divest of equity and generate finance for growth through an IPO, without losing the control they desire to pursue their long-term, market-disrupting visions. Bobby Reddy scrutinises the global history of dual-class stock, evaluates the conceptual and empirical evidence on dual-class stock, and assesses the approach of the London Stock Exchange and ongoing UK regulatory reforms to dual-class stock. A policy roadmap is presented that optimally supports the adoption of dual-class stock while still protecting against its potential abuses, which will more effectively attract high-growth, innovative companies to the UK equity markets, boost the economy, and unleash the true potential of 'founders without limits'.

scholarly journals Permitting dual class shares in the UK premium listing regime – a path to enhance rather than compromise investor protection

Legal Studies ◽  
2021 ◽  
pp. 1-23
Author(s):  
Min Yan
Keyword(s):  
Stock Exchange ◽  
Investor Protection ◽  
Market Mechanism ◽  
High Tech ◽  
Shareholder Protection ◽  
Shareholder Engagement ◽  
The One ◽  
Dual Class Shares ◽  
The Uk ◽  
Dual Class

Abstract Unequal voting rights arrangements under dual class share structures are increasingly favoured by entrepreneurs and founders of technology companies, in order to retain a degree of control over the company that is disproportionate to their equity shareholdings. The rise of such share structures around the world has put competitive pressure on the UK Government and the country's financial regulator to relax the one share, one vote principle in the premium listing regime of the London Stock Exchange, to ensure the UK equities market remains world-leading and fit for the future development of the economy. There is, however, a long tradition of institutional investors’ distaste for dual class share structures. In fact, the near extinction of dual class listings in the UK capital markets can be largely attributed to the opposition of large British institutions. Therefore, this paper will critically discuss the conflict between the demands to attract listings from high-tech and innovative companies and concerns of a race to the bottom in the UK context. It rebuts criticisms based on investor protection and argues that if dual class companies were permitted to list in the Premium Segment, the higher level of regulatory protection provided in the premium listing regime would help enhance minority shareholder protection and shareholder engagement. The additional safeguarding measures, as we have seen from other global financial centres, would also help to restrain the potential abuse of controllers’ weighted voting power. Together with the market mechanism, permitting dual class listings in the Premium Segment should be welcomed.

scholarly journals Corporate control in Europe

2005 ◽  
Vol 2 (2) ◽  
pp. 65-76 ◽  
Author(s):  
Jeremy Grant ◽  
Thomas Kirchmaier
Keyword(s):  
Small Group ◽  
Cash Flow ◽  
Capital Markets ◽  
Corporate Control ◽  
Effective Control ◽  
Private Benefits ◽  
Control Devices ◽  
The Uk ◽  
Cash Flow Rights ◽  
European Economies

Control devices are a common practice in Europe, used to increase the influence of a dominant shareholder upon the firm beyond his/her cash flow rights. They are often very powerful devices which limit the effective control of corporations to a small group of shareholders, and can be utilized to extract private benefits of control. In this paper, we aim to provide an understanding how these devices work in principal and then examine how they are used in the main Western European economies (France, Italy, Germany, Spain and the UK), in light of the recent changes of legislation and despite improvements in the efficiency of capital markets.

scholarly journals Corporate governance and auditor selection: Evidence from Taiwan

2008 ◽  
Vol 6 (1-4) ◽  
pp. 492-503 ◽  
Author(s):  
Chin-Chen Chien ◽  
Ken Y. Chen ◽  
Shan-Ying Wu
Keyword(s):  
Corporate Governance ◽  
Logistic Regression ◽  
Cash Flow ◽  
Multinomial Logistic Regression ◽  
Governance Mechanism ◽  
Control Rights ◽  
High Quality ◽  
Big 5 ◽  
Auditor Selection ◽  
Cash Flow Rights

This paper investigates the relation between corporate governance and auditor selection for firms listed in Taiwan. More specifically, we use the divergence between control rights and cash flow rights (i.e., the ratio of control rights to cash flow rights) to measure the extent of the corporate governance mechanism whereas we use three quality levels to define auditor type - Big 5 industry specialist (highest quality), nonspecialist Big 5 (middle quality), or non-Big 5 auditor (lowest quality). Using both multinomial logistic regression and binary logistic regression models, we find that the likelihood of selecting specialist auditors and Big 5 auditors increases with the ratio of control rights to cash flow rights after controlling for other variables, which suggests that firms with greater entrenchment effects are more likely to hire high quality auditors. Our study contributes to the literature of accounting and auditing by demonstrating the relation between corporate governance, measured as the deviation of control rights and cash flow rights, and selection of high quality auditors, which has not been explored in Taiwan where the interests of controlling and minority shareholders are not perfectly aligned.

Dual Class Ownership and Tax Avoidance

2014 ◽  
Vol 89 (4) ◽  
pp. 1487-1516 ◽  
Author(s):  
Sean T. McGuire ◽  
Dechun Wang ◽  
Ryan J. Wilson
Keyword(s):  
Cash Flow ◽  
Tax Avoidance ◽  
Voting Rights ◽  
Cash Flows ◽  
Data Availability ◽  
Agency Conflicts ◽  
Single Class ◽  
The Difference ◽  
Cash Flow Rights ◽  
Dual Class

ABSTRACT: This study investigates whether the agency conflicts inherent in a dual class ownership structure are associated with the level of firms' tax avoidance. Dual class ownership presents a unique agency problem because insiders control a majority of the votes of a firm despite having claims to a minority of the firm's cash flows. We examine the level of tax avoidance for a sample of dual class firms and find that the extent of tax avoidance declines as the difference between voting rights and cash flow rights increases. We also compare the level of tax avoidance of dual class firms to a sample of propensity matched single class firms and find that dual class firms engage in less tax avoidance as the wedge between insiders' voting rights and cash flow rights increases. These findings are consistent with dual class ownership entrenching managers and allowing them to perform at a suboptimal level. Data Availability: Data used in this study are available from public sources identified in the paper.

scholarly journals Corporate governance and implications for minority shareholders in Turkey

2003 ◽  
Vol 1 (1) ◽  
pp. 72-86 ◽  
Author(s):  
B. Burcin Yurtoglu
Keyword(s):  
Minority Shareholders ◽  
Holding Companies ◽  
Control Structures ◽  
Listed Firms ◽  
Financial Firms ◽  
Using Data ◽  
Dual Class Shares ◽  
Cash Flow Rights ◽  
Dual Class ◽  
And Control

This paper reports on the ownership and control structures of publicly listed firms in Turkey using data from 2001. While holding companies and non-financial firms are the most frequent owners at the direct level, families ultimately own more than 80 percent of all publicly listed firms in Turkey. Pyramids and dual class shares are common devices that families use to separate their cash-flow rights from control rights. We also show that such deviations result in significantly lower market to book ratios suggesting large agency costs because of the conflict of interests between controlling families and minority shareholders

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