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Christoph Van der Elst on Loyalty Shares in RISF

In the second volume of the 'Revue internationale des services financiers' an article written by Christoph Van der Elst on Loyalty Shares will be published.

Recently it is argued that loyalty shares can be used to increase shareholder engagement. In this study, it is empirically shown that ‘loyalty’ shares provide primarily blockholders a larger controlling position. There is limited evidence that these shares increase the involvement of the shareholders. In light of the magnitude of the effects, the latter outcome of higher participation levels is of less importance.

However, this finding should be not read as a plea for banning ‘loyalty’ shares. ‘Loyalty’ shares can be beneficial for companies with shareholders that refuse to surrender control to the capital market. It allows those companies to tap the capital market while retaining control.

Consequently, ‘loyalty’ shares can increase the conflict between large and small shareholders. Alternative instruments providing protection for the weakened position of small shareholders should be provided to mitigate the aforementioned conflict.

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