Wei Zhang and Yan Xu (both Singapore Management University) have posted A Tale of Two Jurisdictions: Red-Chip Companies Going Private on SSRN. Here is the abstract:
In this article, we examine controller-led privatizations of Chinese companies (“red-chip companies”) listed in the United States. Most of these companies were incorporated in the Cayman Islands, while a smaller number were incorporated in Delaware. Their privatizations were therefore subject to scrutiny under Cayman and Delaware corporate law, respectively. Using case studies of matched samples, complemented by regression analyses, we investigate differences in the pricing and deal terms of privatizations involving companies incorporated in these two jurisdictions. We find systematic differences across jurisdictions: Delaware transactions consistently feature higher premiums and stronger procedural protections for minority shareholders than their Cayman counterparts. These findings suggest that corporate law may continue to play an important role in protecting minority shareholders, even for companies with only minimal connections to their place of incorporation. They also raise concerns that recent amendments to Delaware corporate law, which move Delaware closer to the Cayman approach in its scrutiny of controller-initiated privatizations, may weaken the protection of minority shareholders.
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