Pyramidal Ownership and Company Value: Evidence from Polish Listed Companies

This paper examines the effects of pyramidal ownership. Using the sample of 162 non-financial companies listed on the Warsaw Stock Exchange during the period 2010-2014, we verify the relation between the adoption of a pyramidal structure and company value. Specifically, we show that the link between pyramidal ownership and company value is more complex than previously thought addressing the aspect of ownership concentration and dual class shares. Our results indicate that the use of pyramids is associated with a higher value measured by Tobin’s Q, supporting the efficient monitoring hypothesis. Contrary to our expectations the combination of pyramidal ownership and dual class shares is correlated with lower Q. Finally, while the adoption of a pyramid by a majority shareholder does not impact firm value, the combination of a pyramid, ownership concentration and dual class shares is associated with higher Q. This finding suggests that the blockholder ownership outweighs the possible cost of excessive disproportionate ownership and that pyramids and dual class shares have different effects on company value.

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

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.

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.