Minority Shareholders’ Control Rights and the Quality of Corporate Decisions in Weak Investor Protection Countries: A Natural Experiment from China

The Accounting Review, Forthcoming

51 Pages Posted: 8 May 2010 Last revised: 27 Nov 2012

Zhihong Chen

Hong Kong University of Science and Technology

Bin Ke

National University of Singapore

Zhifeng Yang

Stony Brook University

Date Written: November 13, 2012

Abstract

Using a 2004 Chinese securities regulation that requires equity offering proposals to obtain the separate approval of voting minority shareholders, we examine whether giving minority shareholders increased control over corporate decisions helps reduce value-decreasing corporate decisions for firms domiciled in weak investor protection countries. We find that the regulation deters management from submitting value-decreasing equity offering proposals in firms with higher mutual fund ownership. There is also weak evidence that minority shareholders are more likely to veto value-decreasing equity offering proposals in firms with higher mutual fund ownership in the post-regulation period. Overall, our evidence suggests that in weak investor protection countries, the effect of granting minority shareholders increased control over corporate decisions on the quality of corporate decisions depends on the composition of minority shareholders.

Keywords: Corporate Governance, Shareholder Democracy, Direct Shareholder Participation, Financing Policy

JEL Classification: G32, G34, G38

Suggested Citation

Chen, Zhihong and Ke, Bin and Yang, Zhifeng, Minority Shareholders’ Control Rights and the Quality of Corporate Decisions in Weak Investor Protection Countries: A Natural Experiment from China (November 13, 2012). The Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1602868 or http://dx.doi.org/10.2139/ssrn.1602868

Zhihong Chen

Hong Kong University of Science and Technology ( email )

Clear Water Bay
Kowloon
Hong Kong
Hong Kong
(852)-2358-7574 (Phone)
(852)-2358-1693 (Fax)

Bin Ke (Contact Author)

National University of Singapore ( email )

Mochtar Riady Building, BIZ 1, #07-54
15 Kent Ridge Drive
Singapore, 119245
Singapore
+6566013133 (Phone)

Zhifeng Yang

Stony Brook University ( email )

Health Science Center
Level 3, Room 043
Stony Brook, NY 11794-8322
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
669
rank
33,430
Abstract Views
3,296
PlumX