Taking Away the Voting Powers from Controlling Shareholders: Evidence from the Chinese Securities Market

33 Pages Posted: 10 Aug 2010

See all articles by Yi Yao

Yi Yao

Nankai University - Department of Accounting

Li Xu

Washington State University, Vancouver

Zhiyuan Liu

Nankai University - Department of Accounting

Abstract

The main agency problem in the Chinese economy comes from a conflict between strong controlling shareholders and weak minority shareholders. In such economy, seasonal equity offerings (SEOs) are used as a means to exploit minority shareholders. This paper examines the effects of a regulation (the classified voting system [CVS]) that attempts to protect the interests of minority shareholders by excluding controlling shareholders from the voting process of SEOs. This results show that the rejection rate significantly increases after the CVS comes into effect. SEOs proposals are more likely to be rejected when perceived private benefits are high and security benefits are low, and when minority shareholders have higher bargaining power. Further, investors receive significantly higher post-SEO stock returns for SEOs approved under the CVS than for those approved before the CVS.

Suggested Citation

Yao, Yi and Xu, Li and Liu, Zhiyuan, Taking Away the Voting Powers from Controlling Shareholders: Evidence from the Chinese Securities Market. Journal of International Financial Management & Accounting, Vol. 21, Issue 3, pp. 187-219, Autumn 2010, Available at SSRN: https://ssrn.com/abstract=1654653 or http://dx.doi.org/10.1111/j.1467-646X.2010.01040.x

Yi Yao

Nankai University - Department of Accounting ( email )

94 Weijin Road, Nankai District
Tianjin, Tianjin 300071
China

Li Xu

Washington State University, Vancouver ( email )

14204 NE Salmon Creek Avenue
Vancouver, WA WA 98686-9600
United States

Zhiyuan Liu

Nankai University - Department of Accounting ( email )

94 Weijin Road, Nankai District
Tianjin, Tianjin 300071
China

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