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The determinants and effects of voluntary adoption of a cumulative voting system: Evidence from China

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Listed:
  • Yuan, Rongli
  • Liu, Chao
  • Xiao, Jason Zezhong
  • Sun, Jian

Abstract

Using a unique sample of China’s listed firms, we find that firms with strong corporate governance are more likely to adopt the cumulative voting system (CVS) and CVS adoption improves firm performance. Further analyses show that the positive relationship between CVS adoption and firm performance is more significant for firms with less mutual funds’ ownership, in a weak firm information environment, and whose managers have more power. Finally, we find three channels – professionalism of board directors, controlling shareholders’ expropriation, and managerial entrenchment– through which CVS adoption affects firm performance. This study enriches the literature on corporate governance in general and the literature on the principal-principal problems in particular. Our findings also have important policy implications for minority shareholder protection.

Suggested Citation

  • Yuan, Rongli & Liu, Chao & Xiao, Jason Zezhong & Sun, Jian, 2018. "The determinants and effects of voluntary adoption of a cumulative voting system: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 51(C), pages 251-266.
    • Handle: RePEc:eee:pacfin:v:51:y:2018:i:c:p:251-266
    DOI: 10.1016/j.pacfin.2018.07.004
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    More about this item

    Keywords

    Cumulative voting system; Principal-principal problems; Expropriation; Firm performance; Managerial entrenchment;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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