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

The 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.

Common Ownership in America: 1980–2017

We empirically assess the implications of the common ownership hypothesis from a historical perspective using the set of S&P 500 firms from 1980 to 2017. We show that the dramatic rise in common ownership in the time series is driven primarily by the rise of indexing and diversification and, in the cross section, by investor concentration, which the theory presumes to drive a wedge between cash flow rights and control. We also show that the theory predicts incentives for expropriation of undiversified shareholders via tunneling, even in the Berle and Means (1932) world of the widely held firm. (JEL D22, G32, G34, L21, L25)

Investor Sentiment and Price Discrepancies between Common and Preferred Stocks in Korea

We examine whether investor sentiment affects price discrepancies between preferred and common stocks, based on a sample of Korean firms that issue preferred stocks. While most research has focused on corporate finance features such as voting rights, we examine price discrepancies as a behavioral finance feature from a new perspective. Based on the investor sentiment index, as investor sentiment increases, price discrepancies between preferred and common stocks widen in the KOSPI market. These findings confirm that investor sentiment—not merely voting premiums, cash flow rights, and liquidity—is a significant factor in explaining price discrepancies between preferred and common stocks in Korea.

Effect of corporate governance on expropriation practices with family ownership as moderation variable

The practice of expropriation is one of the accounting frauds committed by controlling shareholders because of their control rights that exceed cash flow rights. This study aims to examine and analyze the effect of corporate governance on the practice of expropriation and the existence of family ownership as a moderating variable. This research was conducted at companies in all sectors of the Indonesia Stock Exchange. Based on the purposive sampling method, the sample of this study was 78 companies with 312 observations. The research data were analyzed using multiple regression analysis. The results of this study indicate that the practice of expropriation in Indonesia can be minimized by implementing adequate corporate governance. The results of this study also prove that companies whose shareholding structures are dominated by the family will maintain control in the company through their management so that they have an impact on limiting governance practices in reducing expropriation practices.

Control-Ownership Wedge and Industry Specialist Auditor

This study extends agency theory by explaining the client's understanding of audit quality. This study contributes to the audit literature by examining the effect of wedge control-ownership on industry specialist auditors that have not been researched in Turkey. The interests of minority and controlling shareholders are not completely compatible. The research analysis method used a logistic regression model, finding that firms that practice a larger difference between control rights and cash flow rights tend to prefer high audit quality measures by industry specialist auditors. This study encourages regulators to improve law enforcement to enhance the role of corporate governance in Turkey to address the features of ownership-control firms and offer a suitable environment for investment and minority shareholders.

Do Negative Corporate Social Responsibility Events Signal Financial Misreporting? — Empirical Finding from Taiwan

This study examines whether negative corporate social responsibility events (NCSRs) signal potential firm misreporting and pending financial reporting restatements. Without formal opinions on the effectiveness of internal controls over financial reporting in Taiwan, we hypothesize NCSRs can represent and/or signal a firm’s internal control weakness, which may in turn result in poor financial reporting. Note that the concern with controlling owners expropriating wealth through ineffective internal controls is given important weight by investors and regulators. We further examine whether the signaling function of NCSRs is more pronounced in contexts with a serious agency problem, such as is found in the high divergence of control and cash flow rights case (denoted as high excess control rights) in Taiwan. Empirical results indicate that, as conjectured, incidence of NCSRs is positively associated with the likelihood of reporting restatements. Further evidence reveals that this result is particularly pronounced in the high divergence of control and cash-flow rights subsample test. We demonstrate several diagnostic tests and show the results are robust in various specifications.

Inside the “Black Box” of Ownership Structures in Russia: Evidence from Stock Price Synchronicity

ABSTRACT Ownership structure, an important feature of corporate governance, acts as a determinant of the opacity of firms. This study penetrates the “black box” of the ownership structures of Russian corporations, identifies their salient features, and examines the effects of those features on the information environment (stock price synchronicity) of the corporations. Examining a sample of companies listed on the Moscow Exchange, we find that stock price synchronicity is: (1) positively associated with divergence between control and cash-flow rights of the ultimate owner; (2) negatively associated with the ownership concentration of the ultimate owner; (3) negatively associated with companies controlled indirectly by the state through holding corporations with the presence of oligarchs; and (4) negatively associated with firms with transparent oligarchs. Analyzing the economic impact of the results, we find the presence of non-transparent oligarchs and foreign-offshore holdings has the most adverse effect on stock price synchronicity.