Regulating Weighted Voting Rights in Asia: Pragmatism or a Race to the Bottom?

The weighted voting rights (WVR) structure enables company founders to retain their majority control even though their shareholdings are diluted when raising capital through an initial public offering (IPO). This ability to retain control has incentivised several Chinese companies to consider the WVR availability when selecting a jurisdiction in which to list, and accordingly, the competition is established among these jurisdictions for the listing of these companies. However, the WVR structure introduces entrenchment and exploitation risks. The quest to achieve a balance between management entrenchment and minority shareholder protection has been a hotly debated issue, which, if not properly handled, will result in a “race to the bottom” in IPO regulation to attract listings.

This article offers fresh insights into how this issue is resolved by analysing the new WVR listing rules of two financial centres in Asia: the Hong Kong Stock Exchange and the Singapore Exchange. In an environment of regulatory competition between the two jurisdictions, the article reveals their different positions by comparing the safeguards introduced by these two stock exchanges. The comparison, combined with the regulatory position in the United States as supporting evidence, suggests that the regulatory competition has not resulted in a race to the bottom as both jurisdictions have adopted a number of unique protections. Despite this, further reforms in these jurisdictions are needed to compete with those in the United States.