How do voting powers matter in equity finance? Evidence from chinese private placements

In prevailing theories of capital structure, the role of voting power is often neglected. However, voting mechanisms are critical in financing decisions, as shareholders typically place high value on maintaining control, and voting power is central to that control. This study introduces a financing theory that posits companies are more likely to pursue equity financing when incoming shareholders are unable to challenge the voting power of incumbent shareholders. The theory suggests that in certain ownership structures, newly entering large shareholders cannot meaningfully influence voting outcomes, prompting existing shareholders to favor equity financing. In contrast, when ownership structures allow new shareholders to significantly affect voting results, firms tend to prefer internal or debt financing. To evaluate this theory, the study conducts an empirical analysis using data from Chinese listed companies. The findings support the model's predictions and further reveal that this effect also impacts firm growth and dividend policies.