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

Fa Chen, Lijun Zhao

Research output: Contribution to journalArticlepeer-review


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 from an empirical perspective.
Original languageEnglish
Pages (from-to)215-248
Number of pages34
JournalJournal of International Business and Law
Issue number2
Publication statusPublished - 12 Mar 2017


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