City Research Online

To Be or Not to Be? -- An Empirical Study on Dual-class Share Structure of US-Listed Chinese Companies

Zhao, L. ORCID: 0000-0002-8935-001X & Chen, F. (2017). To Be or Not to Be? -- An Empirical Study on Dual-class Share Structure of US-Listed Chinese Companies. Journal of International Law and Business, 16(2), pp. 215-248.


China (Mainland China) has experienced over three decades economic flourish, and has become the second largest economy. During the period of development, China transplanted and localized the experience of leading economic forces worldwide. As two significant economies, the British (hereinafter “the UK”) and the American (hereinafter “the US”) commercial practices are similar and converging in many senses, which are both mirrored greatly by China. However, with regard to takeover regulation, in particular, the application of takeover defenses, the US and the UK diverge from each other drastically, which empowers the employment of post-bid anti-takeover tactics to directors and shareholders respectively; towards pre-bid takeover defenses, especially, the adoption of dual-class share structure (DCSS), the US and the UK also hold diametrical attitudes. At the crossroad, China chose the British framework of takeover regulation as its mould, banning the application of DCSS with the one share, one vote (OSOV) principle clearly written in both its company laws and listing rules. This choice may be partly attributed to the fact that when devising the framework of takeover regulation, China referred the Hong Kong mode greatly, and thus indirectly reflected the British mode of takeover regulation. More importantly, hostile takeovers were rare in China, and it did not take hostile takeovers into consideration when making the laws. The 2008 global financial crisis brought about financial ravage and detrimental domino effect worldwide. In order to revive the slowing economy through injecting liquidity, in response, China adopted a number of financial policies, which released abundant capital, and a great proportion of which flowed into the field of takeover eventually. Consequently, there are emerging trends that hostile takeovers are booming while corresponding regulations are incompetent. Rather than the lagging regulatory reaction, commercial entities reacted quickly to seek safe harbor. Those American stock exchanges became attractive to Chinese companies due to their tolerance of takeover defenses, in particular, DCSS. To seek the soft regulation with the issuance of multiple voting shares, dozens of Chinese companies chose the American stock exchanges as their initial public offering (IPO) venues. Until June 30 2016, there are 150 Mainland Chinese (Chinese) companies listed on the US stock markets, of which approximately three-tenths employ DCSS. It seems that there is a great desire for DCSS among Chinese listed companies. In this paper, the authors aim to discuss the feasibility of adopting DCSS in China in an empirical perspective. The remainder of this paper is constructed as follows: in Part One, the authors will search out the financial and regulatory factors, which lead to the emerging hostile takeover boom in China. Part Two will be an overview of the US listed Chinese companies with DCSS and other takeover defenses. In Part Three, the authors will analyze the functionality and corporate performance of the US listed Chinese companies with DCSS. Part Four will analyze the limitations and restrictions on the application of DCSS on the US stock exchanges and corresponding implications on the Chinese framework of takeover regulation. Concluding remarks are the subject of Part Five. As to the range of data to be covered, only those companies listed after 2011 will be sampled in this paper due to the consideration that some of the data of the Chinese companies on NYSE or NASDAQ listed prior to 2011, were not available or were inaccurate; counting them leads to misleading results. Furthermore, the data is dated for such a changing area of law. In order to reflect the up-to-date status accurately, this paper focuses its empirical study on data dating back to 2011.

Publication Type: Article
Additional Information: This article has been originally published in Journal of International Business and Law by Hofstra University
Publisher Keywords: Empirical Study; Dual-class Share Structure (DCSS); Feasibility; Company Law
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
J Political Science > JX International law
Departments: The City Law School > Academic Programmes
SWORD Depositor:
[thumbnail of 3. Empirical study Chinese company law_color version.pdf]
Text - Accepted Version
Download (887kB) | Preview


Add to AnyAdd to TwitterAdd to FacebookAdd to LinkedinAdd to PinterestAdd to Email


Downloads per month over past year

View more statistics

Actions (login required)

Admin Login Admin Login