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Majority-of-the-minority shareholder votes and investment efficiency

Author

Listed:
  • Cao, Ning
  • McGuinness, Paul B.
  • Xi, Chao

Abstract

In an environment where concentrated share ownership is the norm, we ask whether Majority-of-the-Minority (MoM) votes curb controlling shareholder overreach and investment inefficiency. We consider MoM votes on controller-based related party transactions in China. Such votes give minority parties potential veto power. We report strong association between shareholder disapprovals on controller-based investment related MoM proposals and the underlying entity's investment plans. This association is robust to a battery of tests, including assessment of pre-vote consultation between minority and controlling shareholders and an exogenous regulatory shock. We also report increased likelihood of informal securities enforcements in the year following MoM shareholder disapproval.

Suggested Citation

  • Cao, Ning & McGuinness, Paul B. & Xi, Chao, 2024. "Majority-of-the-minority shareholder votes and investment efficiency," Journal of Corporate Finance, Elsevier, vol. 89(C).
    • Handle: RePEc:eee:corfin:v:89:y:2024:i:c:s0929119924001184
    DOI: 10.1016/j.jcorpfin.2024.102656
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    More about this item

    Keywords

    Minority shareholders; MoM votes; Related party transactions (RPTs); Investment efficiency; Over-investment; Under-investment; China;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting
    • K2 - Law and Economics - - Regulation and Business Law

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