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The Case for Mandatory Ownership Disclosure

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  • Schouten, Michael C.
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    Abstract

    The use of equity derivatives to conceal economic ownership of shares (“hidden ownership”) is increasingly drawing attention from the financial community, as is the exercise of voting power without corresponding economic interest (“empty voting”). Market participants and commentators have called for expansion of ownership disclosure rules, and policymakers on both sides of the Atlantic are now contemplating how to respond. Yet, in order to design appropriate responses it is key to understand why we have ownership disclosure rules in the first place. This understanding currently appears to be lacking, which may explain why we observe divergent approaches between countries. The case for mandatory ownership disclosure has also received remarkably little attention in the literature, which has focused almost exclusively on mandatory issuer disclosure. Perhaps this is because most people assume that ownership disclosure is a good thing. But why is such information important, and to whom? This paper aims to answer these fundamental questions, using the European disclosure regime as an example. First, the paper identifies two main objectives of ownership disclosure: improving market efficiency and corporate governance. Next, the paper explores the various mechanisms through which ownership disclosure performs these tasks. This sets the stage for an analysis of hidden ownership and empty voting that demonstrates why these phenomena are so problematic.

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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 14139.

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    Date of creation: 08 Mar 2009
    Date of revision: 13 Mar 2009
    Handle: RePEc:pra:mprapa:14139

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    Keywords: ownership disclosure; market efficiency; corporate governance; monitoring; hidden ownership; empty voting; hedge fund activism;

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    10. Enriques Luca, 2004. "The Mandatory Bid Rule in the Takeover Directive: Harmonization Without Foundation?," European Company and Financial Law Review, De Gruyter, De Gruyter, vol. 1(4), pages 440-457, December.
    11. Thomsen, Steen & Pedersen, Torben & Kvist, Hans Kurt, 2006. "Blockholder ownership: Effects on firm value in market and control based governance systems," Journal of Corporate Finance, Elsevier, vol. 12(2), pages 246-269, January.
    12. Hirshleifer, David & Teoh, Siew Hong, 2001. "Herd Behavior and Cascading in Capital Markets: A Review and Synthesis," MPRA Paper 5186, University Library of Munich, Germany.
    13. Susan E.K. Christoffersen & Christopher C. Geczy & David K. Musto & Adam V. Reed, 2007. "Vote Trading and Information Aggregation," Journal of Finance, American Finance Association, vol. 62(6), pages 2897-2929, December.
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