Research On The Dual-Class Share Structure Of Xiaomi Company And Its Governance Effect

With the transformation of China's economy from high-speed growth to high-quality stage,China's Internet technology enterprises driven by technology,capital and information have developed rapidly.Although many rounds of equity financing have brought funds to the company,the shares of the founder of the company have been gradually diluted,and under the background of same shares and same rights,the founder is likely to lose control of the enterprise.The dual-class share structure is an important means to solve the contradiction between dilution of control rights and equity financing,which has been recognized by many scientific and technological innovation enterprises.Before 2018,both the Hong Kong capital market and the mainland capital market only follow the traditional one share,one right principle,so many high-quality Internet technology enterprises with dual-class share structure in China can only go overseas to seek listing.For example,Baidu,Jingdong,Alibaba and other well-known Internet companies are listed in the United States,which leads to the domestic capital market missing a large number of high-quality Internet technology companies.Although the main business of these companies is mainly carried out in China,the citizens can not enjoy the dividends of the growth of excellent companies,and the investment income basically flows overseas,which is a serious loss to China's capital market.In order to enhance the strength of China's capital market and avoid the outflow of resources from high-quality science and technology innovation enterprises,China's capital market began to try to adjust the listing rules.In 2018,the Hong Kong Stock Exchange revised the Listing Rules to allow companies with different rights of the same share to list in Hong Kong,and the State Council,the Securities Regulatory Commission and the Stock Exchange in the Mainland have issued a series of documents to encourage new economic enterprises to list on the Sci-Tech innovation board with different rights of the same share.In this context,on July 9,2018,Xiaomi Company successfully landed on the main board market of Hong Kong,becoming the first domestic company listed in Hong Kong with different rights with the same share,which provides an important reference for other scientific and technological innovative enterprises in China to seek listing.In view of this,this paper selects millet company as a case study to explore the specific design and governance effect of dual-class share structure.This paper mainly studies the motivation,governance effect and possible risks of Xiaomi company adopting dual-class share structure.Research ideas as follows: first introduce the general situation and development process of Xiaomi company,then analyze the financing process of millet company,the realization of founder's control rights,the specific framework of dual-class share structure,so as to explore the situation of founder's control rights after Xiaomi company adopts dual-class share structure.This paper focuses on the motivation,governance effects and possible risks of the dual-class share structure adopted by Xiaomi company,and finds that the motivation of the dual-class share structure adopted by the founder team in Xiaomi company is to maintain the founder's control,to maintain the competitiveness of the company,to ensure the implementation of the long-term strategy of the company and to avoid the brutal acquisition.The main reason for external investors to accept the dual-class share structure is that they are optimistic about the long-term growth potential of Xiaomi and agree with Lei Jun's entrepreneurship and the value creation ability of the company's founding team.In terms of governance effect,this paper first compares the differences in agency cost among Xiaomi company,Meituan Dianping and ZTE,and finds that the management of Xiaomi company has excellent cost control ability and asset utilization ability,and the agency cost is low.After comparing the performance and market performance of the three companies,it is found that the overall corporate governance effect of Xiaomi company has been improved,but the overall performance of stock price is unsatisfactory,and the investment willingness of small and medium-sized investors in the secondary market has gradually decreased.This is mainly because the hot era of high valuation of Internet companies is becoming a thing of the past,affected by the global capital market downturn,investors tend to be more calm,and Xiaomi's performance is good but not up to analysts' expectations.At the end of the case analysis,the paper analyzes the possible risks of dual-class share structure of Xiaomi company,hoping to provide some warning to investors.Finally,through the summary of this case study,this paper puts forward relevant suggestions and enlightenment,hoping to provide theoretical reference for the optimization of dual-class equity system of Xiaomi company,the design of equity system of scientific and technological innovation enterprises in China and the road of listing as well as relevant regulatory departments.