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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).
    4. Feng, Yumei & Pan, Yuying & Ho, Kung-Cheng & Liu, Guanchun, 2023. "Corporate governance of weak stakeholders: Minority investors and investment efficiency," Emerging Markets Review, Elsevier, vol. 56(C).
    5. Fengguang Lyu & Zhiping Zhang & Guangxin Fu & Zhangxin (Frank) Liu & Sirimon Treepongkaruna, 2024. "Multiple shareholding institutional investors and green governance of heavy‐polluting industries," Business Strategy and the Environment, Wiley Blackwell, vol. 33(4), pages 3569-3587, May.
    6. Liping Li & Qisheng Chen & Ximeng Jia & Jin Chen & Enrique Herrera-Viedma, 2024. "The collusion behavior of venture capitalists and entrepreneurs based on “guanxi”: evidence from China," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-18, December.
    7. 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.
    8. Wang, Qiong & Qiu, Muqing, 2023. "Minority shareholders' activism and stock price crash risk: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 87(C).
    9. Huang, Xue & Wang, Zhibin, 2024. "Does minority shareholder activism impede corporate default risk? Evidence from China," Finance Research Letters, Elsevier, vol. 61(C).
    10. 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).
    11. Cui, Xin & Wen, Lulu & Huang, Kai & Li, Jiayi, 2024. "Free riding or participation in governance: Minority shareholders’ online voting and corporate responsiveness," Research in International Business and Finance, Elsevier, vol. 70(PB).
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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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