"Companies Introducing Differential Voting Rights Excel in Management Performance and Shareholder Value Realization"

, Analysis of Performance Differences Between Introduction and Non-Introduction of Dual-Class Voting Rights in Top 100 Global Market Cap Companies

Source: Provided by the Federation of Korean Industries

[Asia Economy Reporter Kim Heung-soon] An analysis of the top 100 global companies by market capitalization revealed that companies adopting dual-class share structures excelled in achieving management performance and shareholder benefits, including growth, profitability, and stability. Dual-class shares are a defensive measure that grants certain shares significantly more voting rights to strengthen the control of specific shareholders, enabling companies to maintain stable management and governance against hostile mergers and acquisitions (M&A).

The Federation of Korean Industries (FKI) announced on the 11th the results of an analysis on whether the top five global stock exchanges?New York Stock Exchange, NASDAQ, Tokyo Stock Exchange, Shanghai Stock Exchange, and Hong Kong Stock Exchange?allow dual-class shares and compared the management performance of companies that have adopted dual-class shares versus those that have not.

According to the FKI, all five major global stock exchanges permit the listing of companies with dual-class shares. This is to protect corporate management rights against hostile M&A and to prevent domestic companies from listing on foreign stock markets.

The New York Stock Exchange first allowed the listing of companies with dual-class shares in 1898 but banned them in 1940 amid shareholder discrimination controversies. However, with the rise of hostile M&A in the 1980s, dual-class shares were reintroduced starting in 1994.

NASDAQ also saw companies like Google and Facebook go public with dual-class shares. The Tokyo Stock Exchange employs the tan-wanju system (which bundles a certain number of shares into one unit, granting one voting right per unit), achieving effects similar to dual-class shares.

Hong Kong and Shanghai Stock Exchanges permitted the listing of companies with dual-class shares in 2018 and 2019, respectively, following the trend of Chinese IT companies such as Baidu and Alibaba listing in the U.S.

Source: Provided by the Federation of Korean Industries

Employment Growth Rate of Dual-Class Share Companies at 32.3%... More Than Twice That of Non-Adopting Companies

The FKI analyzed the management performance of the top 100 global companies by market capitalization from 2014 to 2019, comparing those that adopted dual-class shares with those that did not. The total sales and employment of companies with dual-class shares increased by 54.4% and 32.3%, respectively, which are higher than the growth rates of non-adopting companies (total sales 13.3%, employment 14.9%).

Research and development (R&D) investment and facility investment by dual-class share companies also rose by 190.8% and 74.0%, respectively. In contrast, R&D investment growth for non-adopting companies was only 49.1%, and facility investment decreased by 0.7%. Dual-class share companies saw net income and operating profit increase by 75.9% and 65.6%, respectively, compared to 21.0% and 15.9% for non-adopting companies. Additionally, the capital of adopting companies grew by 75.6%, while their debt ratio decreased by 89.0%. During the same period, non-adopting companies experienced increases of 21.4% in capital and 6.9% in debt ratio.

Companies with dual-class shares also significantly increased dividend amounts and diluted earnings per share, proving more favorable for realizing shareholder benefits. The dividend payout ratio increased by 14.9% for adopting companies but decreased by 6.3% for non-adopting companies.

The FKI pointed out that South Korea does not allow dual-class shares, making it inevitable for domestic companies to list overseas. It also noted that the government's proposed amendment to the "Special Measures for the Promotion of Venture Businesses" applies only to unlisted venture companies and that dual-class shares are valid only within three years after listing.

Yoo Hwan-ik, head of corporate policy at the FKI, emphasized, "The dual-class share system should be fully permitted to protect individual companies' management rights and strengthen the competitiveness of the capital market."

This content was produced with the assistance of AI translation services.