IDEAS home Printed from https://ideas.repec.org/a/gam/jijfss/v5y2017i3p19-d111362.html
   My bibliography  Save this article

Effect of Disproportional Voting Rights on Firm’s Market Performance: Evidence from Chinese Firms Cross-Listed on U.S. Exchanges

Author

Listed:
  • Abdullah

    (School of Economics and Management, Southwest Jiaotong University, Chengdu 610031, China)

  • Jia’nan Zhou

    (School of Economics and Management, Southwest Jiaotong University, Chengdu 610031, China)

  • Muhammad Hashim Shah

    (School of Economics and Management, Southwest Jiaotong University, Chengdu 610031, China)

Abstract

Dual-class firms face great criticism as it is believed that firms choose this structure to expropriate minority shareholders’ wealth. We compare market performance of Chinese dual-class firms with their single-class counterparts by constructing a list of Chinese firms cross-listed on U.S. exchanges. We find, contrary to the literature, that Chinese dual-class firms are outperforming in terms of market performance measured by Tobin’s Q, P/E ratio, and abnormal return in both subsequent years after the initial public offering (IPO). The reason for contrary results is that Chinese dual-class firms bond themselves to high U.S. standards from low local Chinese standards, and it is evident from the literature that when a firm bonds itself to high standards it shows a credible commitment towards minority shareholders’ rights, as well as focus on upright performance rather than investing in value-destroying projects and competes to survive in the market that imposes the high standards.

Suggested Citation

  • Abdullah & Jia’nan Zhou & Muhammad Hashim Shah, 2017. "Effect of Disproportional Voting Rights on Firm’s Market Performance: Evidence from Chinese Firms Cross-Listed on U.S. Exchanges," IJFS, MDPI, vol. 5(3), pages 1-11, September.
    • Handle: RePEc:gam:jijfss:v:5:y:2017:i:3:p:19-:d:111362
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2227-7072/5/3/19/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2227-7072/5/3/19/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Kenneth Scott, 1999. "Institutions of Corporate Governance," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 155(1), pages 1-3, March.
    2. Adams, Renee B. & Santos, Joao A.C., 2006. "Identifying the effect of managerial control on firm performance," Journal of Accounting and Economics, Elsevier, vol. 41(1-2), pages 55-85, April.
    3. Yermack, David, 1996. "Higher market valuation of companies with a small board of directors," Journal of Financial Economics, Elsevier, vol. 40(2), pages 185-211, February.
    4. Lins, Karl V., 2003. "Equity Ownership and Firm Value in Emerging Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(1), pages 159-184, March.
    5. Kai Li & Hernán Ortiz‐Molina & Xinlei Zhao, 2008. "Do Voting Rights Affect Institutional Investment Decisions? Evidence from Dual‐Class Firms," Financial Management, Financial Management Association International, vol. 37(4), pages 713-745, December.
    6. Baulkaran, Vishaal, 2014. "Management entrenchment and the valuation discount of dual class firms," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(1), pages 70-81.
    7. Smart, Scott B. & Zutter, Chad J., 2003. "Control as a motivation for underpricing: a comparison of dual and single-class IPOs," Journal of Financial Economics, Elsevier, vol. 69(1), pages 85-110, July.
    8. Yeh, Yin-Hua & Woidtke, Tracie, 2005. "Commitment or entrenchment?: Controlling shareholders and board composition," Journal of Banking & Finance, Elsevier, vol. 29(7), pages 1857-1885, July.
    9. Smart, Scott B. & Thirumalai, Ramabhadran S. & Zutter, Chad J., 2008. "What's in a vote The short- and long-run impact of dual-class equity on IPO firm values," Journal of Accounting and Economics, Elsevier, vol. 45(1), pages 94-115, March.
    10. Amoako-Adu, Ben & Smith, Brian F., 2001. "Dual class firms: Capitalization, ownership structure and recapitalization back into single class," Journal of Banking & Finance, Elsevier, vol. 25(6), pages 1083-1111, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ting Li & Nataliya Zaiats, 2018. "Corporate governance and firm value at dual class firms," Review of Financial Economics, John Wiley & Sons, vol. 36(1), pages 47-71, January.
    2. Markus Schmid, 2009. "Ownership structure and the separation of voting and cash flow rights-evidence from Switzerland," Applied Financial Economics, Taylor & Francis Journals, vol. 19(18), pages 1453-1476.
    3. Smart, Scott B. & Thirumalai, Ramabhadran S. & Zutter, Chad J., 2008. "What's in a vote The short- and long-run impact of dual-class equity on IPO firm values," Journal of Accounting and Economics, Elsevier, vol. 45(1), pages 94-115, March.
    4. Chen, En-Te & Gray, Stephen & Nowland, John, 2012. "Multiple founders and firm value," Pacific-Basin Finance Journal, Elsevier, vol. 20(3), pages 398-415.
    5. Renée Adams & Daniel Ferreira, 2008. "One Share-One Vote: The Empirical Evidence," Review of Finance, European Finance Association, vol. 12(1), pages 51-91.
    6. Wang, Xiaoming & Cao, Jerry & Liu, Qigui & Tang, Jinghua & Tian, Gary Gang, 2015. "Disproportionate ownership structure and IPO long-run performance of non-SOEs in China," China Economic Review, Elsevier, vol. 32(C), pages 27-42.
    7. Li, Changhong & Li, Jialong & Liu, Mingzhi & Wang, Yuan & Wu, Zhenyu, 2017. "Anti-misconduct policies, corporate governance and capital market responses: International evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 48(C), pages 47-60.
    8. Helwege, Jean & Packer, Frank, 2009. "Private matters," Journal of Financial Intermediation, Elsevier, vol. 18(3), pages 362-383, July.
    9. Black, Bernard & Kim, Woochan, 2012. "The effect of board structure on firm value: A multiple identification strategies approach using Korean data," Journal of Financial Economics, Elsevier, vol. 104(1), pages 203-226.
    10. Arugaslan, Onur & Cook, Douglas O. & Kieschnick, Robert, 2010. "On the decision to go public with dual class stock," Journal of Corporate Finance, Elsevier, vol. 16(2), pages 170-181, April.
    11. Nguyen, Thi Tuyet Mai, 2017. "An examination of independent directors in Vietnam," OSF Preprints ay6dv, Center for Open Science.
    12. Mona Mortazian & Seyedeh Asieh H. Tabaghdehi & Bryan Mase, 2019. "Large Shareholding and Firm Value in the Alternative Investment Market (AIM)," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 26(2), pages 229-252, June.
    13. Ju-Fang Yen & Chih-Yung Lin & Yan-Shing Chen & Ying-Chen Huang, 2015. "Founding Family Firms and Bank Loan Contracts," Journal of Financial Services Research, Springer;Western Finance Association, vol. 48(1), pages 53-82, August.
    14. Liu, Sun, 2015. "Corporate governance and forward-looking disclosure: Evidence from China," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 25(C), pages 16-30.
    15. Chou, Hsin-I & Chung, Huimin & Yin, Xiangkang, 2013. "Attendance of board meetings and company performance: Evidence from Taiwan," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4157-4171.
    16. Suveera Gill & Parmjit Kaur, 2015. "Family Involvement in Business and Financial Performance: A Panel Data Analysis," Vikalpa: The Journal for Decision Makers, , vol. 40(4), pages 395-420, December.
    17. Ilduara Busta & Evis Sinani & Steen Thomsen, 2014. "Ownership concentration and market value of European banks," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(1), pages 159-183, February.
    18. Connelly, J. Thomas & Limpaphayom, Piman & Nguyen, Hien T. & Tran, Thanh D., 2017. "A tale of two cities: Economic development, corporate governance and firm value in Vietnam," Research in International Business and Finance, Elsevier, vol. 42(C), pages 102-123.
    19. Tleubayev, Alisher & Bobojonov, Ihtiyor & Gagalyuk, Taras & García Meca, Emma & Glauben, Thomas, 2021. "Corporate governance and firm performance within the Russian agri-food sector: does ownership structure matter?," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 24(4), pages 649-668.
    20. Peter Roosenboom & Tjalling Van Der Goot, 2003. "Takeover Defences and IPO Firm Value in the Netherlands," European Financial Management, European Financial Management Association, vol. 9(4), pages 485-511, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jijfss:v:5:y:2017:i:3:p:19-:d:111362. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.