Do Majority-of-Minority Shareholder Voting Rights Reduce Expropriation? Evidence from Related Party Transactions

59 Pages Posted: 4 Mar 2018 Last revised: 3 Mar 2021

See all articles by Nan Li

Nan Li

University of Minnesota - Twin Cities - Carlson School of Management

Date Written: February 28, 2021

Abstract

In the presence of business groups, the expropriation through related party transactions (RPTs) is common and costly to minority shareholders. Using the setting of India's RPT voting rule, I find that a majority-of-minority shareholder voting mechanism helps mitigate expropriation. Minority shareholders actively raise their voice against RPT resolutions. A difference-in-differences analysis reveals that shareholder voting has a significant deterrence effect on RPT volume. I also find that stock markets react positively to the voting rule's passage, and that the rule makes Indian firms more attractive to foreign institutional investors.

Keywords: related party transactions; shareholder voting; controlling shareholders; tunneling; corporate governance

JEL Classification: G34, K22, M40

Suggested Citation

Li, Nan, Do Majority-of-Minority Shareholder Voting Rights Reduce Expropriation? Evidence from Related Party Transactions (February 28, 2021). Columbia Business School Research Paper No. 18-26, Available at SSRN: https://ssrn.com/abstract=3128408 or http://dx.doi.org/10.2139/ssrn.3128408

Nan Li (Contact Author)

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

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