Introduction of Loyalty Shares in the Belgian listed companies, a real game changer?

Belgium broke up with the long tradition of “one share, one vote” and recently authorized listed companies to introduce loyalty shares. The particularity of such shares it that it grants double voting rights to loyal shareholders (i.e. that have been registered for a minimum period of two uninterrupted years) of listed companies without creating new shares per se. The implementation of such shares in a company requires a two-third majority vote. To justify this novelty, the Belgian government used two reasons. The first one is that those shares would help to curb the current issue of short-termism, observable in the behaviour of current shareholders. The second one is that by allowing controlling shareholders to retain more easily their control, loyalty shares would help them overcome their fear of losing the control when being listed, therefore increasing the number of listings on the national Stock Exchange. We already find those shares in Italy and France in Europe and as the goal of this work is to forecast the impacts of their introduction in Belgium, we based our analysis on those two countries. Studies in those countries have already demonstrated that loyalty shares don’t help in the matter of short-termism and that it is mainly family businesses that implement those loyalty rewards. To measure the impacts of those shares on IPOs, we designed a statistical model gathering the determinants for a company to go public, and added variables taking in account the existence of loyalty shares in the country or not. It resulted that this impact is ambiguous and can be interpreted as positive for Italy (compared to Germany which doesn’t have loyalty shares) or negative for France. However, we also find that in Italy, a very limited number of companies actually authorized loyalty shares in their statutes and the vast majority did it when they were already listed. In addition, the listing of small firms is a failure in Belgium and there is no reason to think that loyalty shares will improve the situation. fstockThe second argument used by the government is therefore questionable and we are in a position to wonder if loyalty shares in Belgium will really have an impact or if there is a hidden agenda behind their introduction.