Agency Costs And Legal Strategies Of Dual-class Share Structure

At the end of 2017,the Hong Kong Exchange and Clearing Limited(Hereinafter as “HKEX”)announced that it would begin to accept the listing application with dual-class share structure in mid-2018.HKEX's hesitating attitude towards dual-class share structure in recent years contributes to further study of this problem among the scholars.This paper introduces the concept,characteristics and functions of the dual-class share structure and further analyzes that the natural disadvantage of the structure was due to the too high agency cost during the company governance.Some may argue the excessive agency cost has reasonable base for its existence or even such cost is acceptable from the perspective of cost-benefit analysis.But in the principle of fairness and justice,the risk of this equity structure for public shareholders could be restricted and under control via relevant legal structure,which in turn can also increase the investor's confidence in investing such companies.For example,in US,mandatory information disclosure requests related transaction details become public.And securities group litigation with potential attorney's fee and the redistribution of the burden of proof can guarantee public shareholders efficient and reasonable remedy.Likewise,China also has the necessity to introduce dual class share structure,and meanwhile the corresponding legal system shall be adjusted to alleviate the problem of high agency cost in such companies.