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Minority shareholders protection and corporate financial leverage: Evidence from a natural experiment in China

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  • Cao, Qingzi
  • Fang, Ming
  • Pan, Yuying

Abstract

Using the online voting policy in Chinese market as a natural experiment of minority shareholders protection, this paper explores the relationship between minority shareholders protection and corporate financial leverage. The results show that the participation of minority shareholders in online voting of shareholders' meeting can significantly reduce corporate financial leverage. Our results are still valid after a series of robustness tests. In terms of mechanism, we find that minority shareholders participating in the online voting can play a crucial supervisory role on the management, which can improve the level of internal control and reduce the overconfidence of the management. The above monitoring effect can reduce the corporate financial leverage. In addition, our heterogeneity test results show that the impact of online voting on financial leverage is more significant for small capitalization, non-state-owned firms, and firms with relatively low level of external supervision.

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  • Cao, Qingzi & Fang, Ming & Pan, Yuying, 2022. "Minority shareholders protection and corporate financial leverage: Evidence from a natural experiment in China," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:pacfin:v:73:y:2022:i:c:s0927538x22000373
    DOI: 10.1016/j.pacfin.2022.101742
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    2. Rezvan Pourmansouri & Amir Mehdiabadi & Vahid Shahabi & Cristi Spulbar & Ramona Birau, 2022. "An Investigation of the Link between Major Shareholders’ Behavior and Corporate Governance Performance before and after the COVID-19 Pandemic: A Case Study of the Companies Listed on the Iranian Stock," JRFM, MDPI, vol. 15(5), pages 1-30, April.
    3. Wang, Qiong & Qiu, Muqing, 2023. "Strength in numbers: Minority shareholders' participation and executives' pay-performance sensitivity," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
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    5. Feng Niu & Liuzhen Zhang & Wunhong Su, 2023. "Association between state ownership participation and the performance of private firms: Evidence from China," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 31(4), pages 979-1006, October.
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    7. Chen, Shen & Chen, Yuran & Zhang, Di & Wang, Jinmei, 2023. "Can minority investor activism promote corporate risk-taking? Evidence from a quasi-natural experiment in China," International Review of Financial Analysis, Elsevier, vol. 85(C).
    8. Lee, Eugenia Y. & Ha, Wonsuk, 2023. "Electronic voting in shareholder meetings and the market value of cash holdings," International Review of Financial Analysis, Elsevier, vol. 89(C).
    9. Lu, Qiaoshan & Xiang, Cheng & Li, Bingxiang & Feng, Lixuan, 2023. "Non-controlling shareholders' governance participation and corporate misconduct: Evidence from voting in general meetings," Pacific-Basin Finance Journal, Elsevier, vol. 81(C).

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    More about this item

    Keywords

    Minority shareholders; Online voting; Financial leverage; Internal control; Overconfidence;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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