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The cost of institutional innovation in the absence of an external governance mechanism — A case study on the ‘Alibaba Partnership’

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  • Guochao Yang

Abstract

This paper studies the cost-benefit trade-off of Alibaba Partnership, an innovative dual-class ownership structure, under a change in the external governance environment. The study finds that the Alibaba Partnership gives its management more voting rights than cash-flow rights. When Alibaba Partnership was established, Alipay’s equity was transferred, which caused the share price of Yahoo and Softbank both fell sharply. In addition, Yahoo’s equity of Alibaba was repurchased by Alibaba at an extremely low price. When Alibaba Partnership was first disclosed, the share price of Yahoo and Softbank continued to fall sharply. After entering into the US capital market, Alibaba experienced a sharp fall in share price immediately following the ‘White Paper Incident’. All of the results show that, the innovative Alibaba Partnership, in the absence of an external governance mechanism, could incur potential costs of separation of ownership and control.

Suggested Citation

  • Guochao Yang, 2018. "The cost of institutional innovation in the absence of an external governance mechanism — A case study on the ‘Alibaba Partnership’," China Journal of Accounting Studies, Taylor & Francis Journals, vol. 6(4), pages 498-526, October.
    • Handle: RePEc:taf:rcjaxx:v:6:y:2018:i:4:p:498-526
    DOI: 10.1080/21697213.2019.1612192
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    Cited by:

    1. Hameeda A. AlMalki & Christopher M. Durugbo, 2023. "Systematic review of institutional innovation literature: towards a multi-level management model," Management Review Quarterly, Springer, vol. 73(2), pages 731-785, June.

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