2.1 Introduction

Over recent years, a number of regulators have launched proposals to expand the obligation to disclose major share ownership in listed companies. The UK Financial Services Authority, for example, in 2007 proposed to amend its ownership disclosure mies to require investors to disclose all major long positions, including positions obtained through cash-settled equity derivates.1 The UK mies have since been amended accordingly.2 More recently, the European Commission has proposed a Directive that would require extensive disclosures by managers of hedge and private equity funds acquiring controlling influence in listed companies.3

This chapter shows that these are not stand-alone developments, but developments that fit within an evolutionary chain towards increased transparency requirements for investors. Using a unique dataset comprising data from 25 countries over 11 years (1995-2005) and collected by the Centre for Business Research (CBR) at the University of Cambridge, we empirically study the evolution of ownership disclosure mies across countries. The analysis demonstrates that ownership disclosure mies have become more stringent over time, and we argue that they are likely to become even more stringent in the future.

The remainder of the chapter is structured as follows. Section 2.2 briefiy describes the benefits of ownership disclosure mies. Accordingly, this section discusses the various mechanisms through which ownership disclosure can fulfil two main functions: improving corporate governance and improving market efficiency. We draw from these insights later in the chapter, when we offer possible explanations for the results of our analysis.

Section 2.3 describes the dataset and explains the methodology for coding ownership disclosure mies. Using descriptive statistics and tests of differences between means, this section subsequently shows how countries' ownership disclosure mies have evolved over time. Our main finding is that ownership disclosure mies have become more stringent over time, in the sense that disclosure thresholds have, on average, been lowered. We also examine whether differences between certain types of countries can explain the variations that we observe. The data indicates that developed countries have, on average, had more stringent ownership disclosure mies, but developing countries are catching up. By 2005, there was a strong convergence towards a 5% threshold for disclosure.

Section 2.4 explores the relationship between ownership disclosure mies and other features of the corporate governance landscape. We observe a large positive correlation between the variable for ownership disclosure and other variables that protect minority shareholders against controlling shareholders. The data also indicates that the stringency of countries' ownership disclosure mies is positively correlated to the degree of dispersed ownership. We offer several possible explanations for these results.

Section 2.5 discusses the future of ownership disclosure mies. While there are signs that there may be convergence towards a 3% threshold, it appears unlikely that there will be many countries adopting an even lower threshold. However, we can expect ownership disclosure mies to continue to evolve in other dimensions. As the UK and EU examples illustrate, regulators may amend their ownership disclosure mies in two ways. First, they may broaden the definition of the stake that triggers disclosure, so as to ensure that the ultimate owner is reached. Second, they may require that more information be disclosed when the notification is made, so as to enable other investors and issuers to adequately assess the implications of major share ownership.