What happens to companies already listed on a stock exchange when the exchange opens its doors to dual-class listings? ACI research finds that in Hong Kong, investors initially saw the reform as a competitive threat to existing technology firms. DCS reform can make existing technology firms look more vulnerable at first, then more valuable as new capital enters the market. As Hong Kong moved ahead with the reform, investors increasingly recognised that attracting new technology listings could also bring more capital into the market.

Under the traditional one-share-one-vote model, voting power rises with share ownership. Dual-class share (DCS) structures depart from this by giving some shares, usually held by founders and insiders, more votes than others. Founders can therefore raise external capital while retaining greater control. Supporters argue that this protects long-term strategy from short-term market pressure, while critics point to weaker shareholder oversight and concentrated voting power.

Hong Kong and Singapore had long required one-share-one-vote structures, but competition for high-profile technology listings pushed both exchanges to change course. Hong Kong introduced a DCS regime in 2018 with safeguards including a ten-vote-per-share cap and sunset provisions. Singapore followed later that year. These reforms allow the study to examine how investors value DCS, including its effects on firms already listed on the exchange.

The study tracked how the share prices of 2,262 Hong Kong-listed firms changed around key regulatory developments between 2015 and 2018. When HKEX first proposed allowing DCS listings in 2015, technology firms earned, on average, 1.1 per cent lower returns than non-technology firms over the event window. The negative response was stronger for technology firms in more competitive industries and those facing greater financial constraints. This points to a competition effect: investors expected new DCS entrants to have an advantage because their founders could retain control and pursue longer-term strategies.

But the reaction did not stay negative. When Xiaomi became Hong Kong’s first DCS-listed company in 2018, technology firms performed better relative to non-technology firms. The positive relative response was stronger among firms with greater institutional ownership, particularly foreign institutional ownership. The study also estimates that the reform was associated with a 0.28 percentage-point decline in the cost of capital for Hong Kong technology firms relative to non-technology firms. Together, these results point to a capital effect: prominent new listings can attract investors and liquidity that benefit firms already in the market.

Evidence from Singapore and China reinforces the importance of institutional context. Singapore technology firms reacted positively when SGX moved to allow primary DCS listings, consistent with expectations of new capital and investor safeguards. In China, technology stocks performed better when Ant Group’s IPO received regulatory approval, then moved in the opposite direction when the listing was suspended. Expectations about capital flows and regulatory certainty can therefore spill over quickly to incumbent firms.

For Asian exchanges, DCS reform is not simply a choice between founder control and shareholder protection. It can change who comes to the market, how investors value existing firms, and how much capital the market can attract. Safeguards such as voting caps and sunset clauses remain important, but investor responses evolve as rules become clearer and listings materialise. The policy challenge is to keep exchanges attractive to innovative firms without weakening confidence in governance, while recognising that the gains and costs extend beyond the companies that use DCS themselves.

By Adam ROMZI

Researchers: LIANG, Hao, NGUYEN, Tran Bao Phuong, ZHANG, Wei