Homework Assignment on Alibaba

As disclosure in the Form F-1 Registration Statement of Alibaba, their governance structure will bring risks to investors to some extent. Alibaba is going to restrict the power to nominate the majority of board to only a small group of people, which is called the Alibaba partnership. Then Softbank and Yahoo will vote for those nominees each year. Accordingly, this governance structure and contractual arrangement will limit investors’ ability to influence corporate matters, including any matters determined at the board level. [1] In addition, to further lock the control right to, the Alibaba partnership will remain control over the majority of the board for the life and the board remain the ability to issue special preferred shares at any time, with any rules the board wants, without any shareholder vote. Along with the dual class stock structure, the Alibaba partnership is able to control the company with only small stake held. Obviously, dual class structure inputs great risk to corporate governance. However, several well-known public companies around the world choose the structure to lock on control such as Google and Facebook, despite that investors would concern about their corporate governance. Therefore, we have weight the pros and cons carefully to decide whether or not to make the investment. For the negative side of Alibaba’s governance structure, with an absolute control over the company and a limited fraction of the equity capital, the Alibaba partnership members have sufficient incentives to divert value from Alibaba to other entities in which they own substantial percentage of shares. This can be achieved by making transactions with those companies on the term that favor them and at the cost of Alibaba. The disclosure of related party transactions has proved that this concern is necessary. In 2010, Alibaba divested