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
Date Written: February 28, 2021
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: Suggested Citation