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E-MailLucian Bebchuk is William J. Friedman and Alicia Townsend Friedman Professor of Law, Economics, and Finance and Director of the Program on Corporate Governance, Harvard Law School.
Wall Street is eagerly watching what is expected to be one of the largest initial public offerings (IPOs) in history: the offering of the Chinese Internet retailer Alibaba at the end of this week. Investors have been described by the media as “salivating” and “flooding underwriters with orders.” It is important for investors, however, to keep their eyes open to the serious governance risks of investing in Alibaba.
In a New York Times DealBook column, posted today, I analyze these governance risks. I show that Alibaba’s ownership structure does not provide adequate protections to public investors. In particular, such investors should worry that, over time, a significant amount of the value created by Alibaba would not be shared with them. Investors participating in the IPO, I conclude, should recognize the significant governance risks they will be taking.
The column, Alibaba’s Governance Leaves Investors at a Disadvantage, is available here.
One Comment
Prof. Bebchuk does a service by explaining to those accustomed to investment as an informed financial judgement that investment in Alibaba is an act more akin to religious faith. It is regrettable that the service was needed; All the information in the article has been extracted from the company’s SEC filings, but appear amid such vast disclosures that the story must be extracted and delivered separately. There is a message in this of support for the SEC’s mission to simplify financial reporting, and a discouraging lesson also in how vast is the challenge of simplification.
I take issue with Bebchuk in one respect. He does not mention the virtual certainty of the shareholder litigation that will erupt at the first sign of disappointed growth or earnings expectations. The legal machinery of shareholder entitlement will engage, no matter how much warning there may have been prior to investment.
Alibaba will become a household name, either for its success or its controversies. Both are likely.