Discussion On The Rights And Interests Protection Of Minority Investors Under The Dual-class Share Structure

When Alibaba first applied to list on the Hong Kong Stock Exchange in 2013,it applied for a special dual-class share structure called the partnership system,but was rejected by the exchange.At that time,the Chinese financial market did not accept the ownership structure of the same share with different rights,believing that it would harm the interests of minority investors.Alibaba then chose to list on the New York Stock Exchange,which supports dual-class shares.Internet companies like Pinduoduo and JD,which want to retain control right of founders during fundraising,are following Alibaba’s lead.It is a pity for China’s financial market and the beginning of its financial market reform that excellent Chinese Internet companies choose to go public in the United States.Company structures with the same share and different rights were allowed to list on the Hong Kong Stock Exchange,the Science and Technology Innovation Board and the Growth Enterprise Board in 2018,2019 and 2020 respectively.However,although dual share structure can effectively solve the problem of control struggle in financing,it also impacts the original corporate governance system,separating cash flow rights from voting rights,so that founders have too much decision-making power.The improvement of founders’ voting rights has brought about the advantages of improving decision-making efficiency and reducing the first type of agency costs,but also brought about the problem of protecting the rights and interests of minority investors.Effective protection of the rights and interests of minority investors is an important link for the smooth operation of dual-class share structure,and is also one of the urgent problems to be solved in the academic and practical circles.Through the discussion of rights and interests protection mechanism of minority investors under dual share structure,we can clarify the various conditions of protection mechanisms,so that they can promote the realization of rights and interests of minority investors.This can help our investor protection work clear standards,provide ideas,help minority investors to identify and avoid the risk of dual-class share structure,help enterprises and investors to create a win-win situation.The methods of this thesis are literature research,case analysis and comparative analysis.On the basis of principal-agent theory,control right theory and butler theory,expounds the rights and interests protection mechanism and effect evaluation system of minority investors in dual-share structure enterprises in the three aspects of income right,decision-making and supervision right and right to know.Then,this thesis chooses Pinduoduo,a US-listed enterprise that adopts the "dual class share + partner system",as the case company to verify the above theory.Meanwhile,the equity index of Pinduoduo is better than that of Alibaba and JD in the same industry,which indicates that Pinduoduo has a higher level of protection for the rights and interests of minority investors.Finally,this thesis makes a comparative analysis of the dual share enterprises and the same share enterprises with the same rights by using the financial indicators of the income right and decision-making and supervision right,and finds that the protection level of minority investors in dual share enterprises is no less than that of the same share enterprises with the same rights.It is found that the psychological ownership and risk and return trade off mechanism can be used to restrain the shareholders with high voting rights,so that they can exert their real talents,maintain corporate culture,improve the decision-making efficiency,implement long-term strategy,enhance the long-term value of the company,improve the intrinsic value of the company’s shares,and effectively protect the income of minority investors.At the same time,through this restraint mechanism,coupled with the sunset clause,adoption time,multiple and exercise scope restrictions and other external supervision mechanisms,can effectively alleviate the agency problems in dual-class share structure.Moreover,the information disclosure system can be improved by disclosing differentiation at the listing stage,fully disclosing corporate risk factors and related party transactions,so that minority investors can know the actions of enterprises in time to decide their own investment strategies and protect their rights to know.In terms of investor protection,enterprises with dual-class share structure are no weaker than enterprises with same share and same rights,which is sufficient to prove that the improvement of efficiency and agency cost brought by specialization under dual-class share structure can be balanced through appropriate mechanisms,so as to enhance the overall value of enterprises and effectively protect the rights and interests of minority investors.The conclusions are helpful for investors to think more comprehensively about the degree of investor protection,help investors to identify whether enterprises are worth investment,and also provide some experience for regulators to improve the minority investors protection system: Pay attention to the decision-making ability of high-voting shareholders,limit the power of high-voting shareholders,pay attention to the information disclosure of founding shareholders and the transparency of public decisions.