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Alibaba Group Holding Ltd (BABA)’s Structure Scares Off Investors

Alibaba Group Holding Ltd (NYSE:BABA)’s corporate structure can compromise the way people perceive the company. It’s not a problem at the moment, when everybody is blinded by the upcoming Initial Public Offering (IPO), but it might be more appalling to the eye as problems creep into the business. Cory Johnson, Bloomberg West Editor at Large, explained on Bloomberg why skepticism is expected in a certain amount when discussing Alibaba Group Holding Ltd (NYSE:BABA), although it’s not a mandatory criterion. 1

“It is worth pointing out that if we’re looking for beauty in corporate governance the tax base is not exactly where we want to start,” said Harvard Business School’s Josh Lerner.

The professor added that there are companies like Google Inc (NASDAQ:GOOGL) which have a twisted structure of governance, so it’s not necessarily a verdict for Alibaba Group Holding Ltd (NYSE:BABA), however, this also doesn’t mean that the company might not suffer if difficult times are to be reached.

 “It introduces risk. It’s a level of risk that other companies don’t have, so all day long we’re going to be talking about relative valuation. We’re going to look at: hey is this better or worse than Amazon, is it cheaper than Salesforce, is this a company like eBay,” said Cory Johnson, Bloomberg West Editor at Large.

In particular, this difficulty in understanding the corporate structure and how it functions with the peculiarity of having the need to buy a master holding company to get into the shares of Alibaba Group Holding Ltd (NYSE:BABA) is what can change the way people perceive the e-commerce giant, according to Johnson. He also brings out the fact that companies with dual-shares structure have underperformed their peers on the marketplace disregarding the type of the industry involved. Possibly all this complexity was introduced in order to pay less in taxes and thus attain more money. In any case Alibaba Group Holding Ltd (NYSE:BABA)’s CEO, Jack Ma, must be able to handle the situation for any possible turn of events.

Disclosure: none

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