Can a Not-for-Profit Minority Institutional Shareholder Make a Big Difference in Corporate Governance? A Quasi-Natural Experiment

59 Pages Posted: 13 Nov 2020 Last revised: 6 Dec 2021

See all articles by Wenxia Ge

Wenxia Ge

University of Ottawa

Caiyue Ouyang

Beijing Jiaotong University

Zhenyang Shi

BI Norwegian Business School

zhanliao chen

affiliation not provided to SSRN

Date Written: September 24, 2020

Abstract

In this study, we examine the effectiveness of the China Securities Investor Service Center (CSISC), a new minority shareholder protection mechanism promoted by the China Securities Regulatory Commission, in constraining earnings management. Employing a difference-in-differences analysis for a sample of Chinese listed companies during 2015-2017, we find that CSISC shareholding reduces earnings management. We also find that this effect exists when the internal and external corporate governance mechanisms of listed companies are weaker. Furthermore, our empirical evidence indicates that restraining tunneling is a channel through which the CSISC affects earnings management. The additional analyses show that the CSISC-holding firms (i.e., treatment firms) exhibit higher cumulative abnormal returns around the announcement of the CSISC shareholding pilot program than the control firms, and the difference in earnings management between the treatment and control firms is diminishing after the pilot program was promoted nationwide. Our findings have important policy implications for emerging markets that attempt to improve minority shareholder protection.

Keywords: China Securities Investor Service Center, Corporate Governance, Minority Shareholder Protection, Earnings Management, Tunneling

JEL Classification: G32, G38, M41

Suggested Citation

Ge, Wenxia and Ouyang, Caiyue and Shi, Zhenyang and chen, zhanliao, Can a Not-for-Profit Minority Institutional Shareholder Make a Big Difference in Corporate Governance? A Quasi-Natural Experiment (September 24, 2020). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3699287

Wenxia Ge

University of Ottawa ( email )

55 Laurier Avenue East
Ottawa, Ontario K1N 6N5
Canada

Caiyue Ouyang (Contact Author)

Beijing Jiaotong University

China

Zhenyang Shi

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Zhanliao Chen

affiliation not provided to SSRN

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
66
Abstract Views
658
rank
481,486
PlumX Metrics