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Governance by One-Lot Shares

Published online by Cambridge University Press:  25 November 2024

Feng Cao ,
Yuhai Xuan Open the ORCID record for Yuhai Xuan [Opens in a new window] ,
Rongli Yuan  and
Hong Zou
Feng Cao
Affiliation:
Hunan University Business School caofeng@hnu.edu.cn
Yuhai Xuan*
Affiliation:
University of California Irvine Paul Merage School of Business
Rongli Yuan
Affiliation:
Renmin University of China Renmin Business School yuanrongli@rmbs.ruc.edu.cn
Hong Zou
Affiliation:
University of Hong Kong Faculty of Business and Economics hongzou@hku.hk
*
yuhai.xuan@uci.edu (corresponding author)
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Abstract

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We use a novel experiment in China to examine the effects of having a quasi-official investor own a small number of shares on specific firm outcomes. We find that, relative to control firms, pilot firms experience an increase in dissenting votes from independent directors, a reduction in tunneling and earnings management activities, and an improvement in merger performance. Independent directors questioned by the quasi-official shareholder in activism events subsequently lose board seats in the director market. Overall, our results shed light on a new mechanism for enhancing the protection of minority shareholders.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 36
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2024. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank an anonymous reviewer, Rustam Abuzov, Mike Adams, Simba Chang, Maxime Couvert, Shinichi Kamiya, Angie Low, Paul Malatesta, Daniel Schmidt, Robert Schonlau, Kenny Yang, Wentao Yao, Eyub Yegen, Yiyuan Zhou, and seminar participants at Nanyang Technological University, Renmin University of China, University of Hong Kong, and the World Finance & Banking Symposium for helpful comments and suggestions. Cao and Yuan acknowledge the financial support from the National Natural Science Foundation of China (Projects #71972068 and #71872179, respectively). Yuan also acknowledges the support of fund for building world-class universities (disciplines) of Renmin University of China (Project # KYGJC2021009). Zou acknowledges the financial support from the University of Hong Kong Seed Fund for Basic Research (#201811159198).

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