Differentiated voting rights arrangement under dual-class share structures in China: expectation, reality, and future

Abstract

Following other leading financial centres in Asia, China has recently relaxed restrictions on ‘one share, one vote’ and started to allow companies with differentiated voting rights (DVR) arrangements under dual-class share (DCS) structures to list on its newly established Sci-Tech Innovation Board, also known as the Star Market. The DVR arrangements and the DCS structures sever insiders’ control from their equity shareholdings in the company, as their voting rights can be disproportionately greater than their cash flow rights. The move primarily aims to provide more flexible capital structures to support a sustainable development of high-tech and innovative companies and to increase stock exchanges’ competitiveness in attracting and retaining companies that prefer going public with DCS structures. However, reality has deviated from scholars’ and policymakers’ expectations as just one company has applied for and been listed with a DCS structure since the official permission for such share structures was granted in March 2019. Rather than simply looking into the evolution of and debate over DCS structures, this article examines the underlying reasons for the discrepancy between expectations and reality in China’s implementation of DCS structures. This article also critically discusses the role and future of DCS structures in the Chinese context.