| Minority shareholders are the overwhelmingly majorities of Chinese A-share capital market,whose lawful interests have been infringed by the internal chiefs for a long time.However,they still tend to be "free-riders" in corporate governance,or straightly "vote by feet",which impedes the sound and high-quality development of listed firms and capital market.Since the 21st century,many investor protection systems have been established,fostering the burgeoning of minority shareholder activism,and improving minority shareholders’ investment philosophy,rights awareness,and exercise of rights.In fact,since the initiation of agency theory,minority shareholders protection has been the focus of the academia.Studies on shareholder activism have also been emerging.But in the early studies,the concept of minority shareholder is usually a correspondence to the controlling shareholder,which includes some non-controlling large shareholders.Thus,these studies actually discussed the governance effects of the latter,to a large extent,instead of minority shareholders in Chinese A-share capital market.In the meantime,recent studies mainly focused on the shareholding proportion of active minority shareholders.The conclusions still imply the importance of the stakes,which may lead to limited stimulations to the rights awareness and participation of minority shareholders.Against the theoretical and practical background,this study emphasizes on the minority shareholder in Chineses A-share capital market(defined as shareholders holding less than 5%shares,except the management),focuses on the crowd and their attendance to annual general meetings(AGMs),to investigate the governance effects of minority shareholder activism.In particular,the power of minority shareholder crowd is underlined and separated from the influence of stakes by comparing the differences of influence between the population and share of active minority shareholders.Specifically,using the manually collected the data of minority shareholders’ attendance to AGMs of A-share firms listed in Shenzhen Securities Exchange spanning from 2015 to 2019,this study constructed key variables of minority shareholders’ participation,and focused on the current important problems of corporate governance,i.e.,independent directors’ monitoring,large shareholder tunneling,and executive compensation,to investigate the governance effects of minority shareholder activism.First,in terms of board,independent director system is an important measure of minority shareholder protection.One of the main responsibilities of independent directors is to protect the lawful rights and interests of minority shareholders from the infringement from the internal chiefs.Therefore,this study explores the influence of minority shareholder activism on independent directors’ dissentions.Theoretically,minority shareholders activism increases the reputational costs and legal risks of dereliction of independent directors’ duties,and enhances their perception to protect the interests of minority shareholders,thus increases the possibility of their dissentions.Empirical analyses suggest that the more minority shareholders participate,the more likely independent directors put forward dissentions on board proposals.The effect is more pronounced among firms with female independent directors and more media attention.This governance effect can be realized through specific channels such as increasing the probability of recall or reelection of directors,as well as attracting the inquiries of the exchange.Second,in the aspect of shareholders,large shareholder tunneling is one of the main causes to infringement,leading to be the long-term regulatory focus.Therefore,this study analyzes the governance effect of minority shareholder activism on tunneling.Theoretically,on the one hand,minority shareholder activism helps recognize the tunneling of large shareholders,thus increases the possibility of the exposure of tunneling.On the other hand,limited attention of external monitors is more easily to be attracted by minority shareholder activism,so that increasing the potential reputation and violation costs of tunneling,as a result,restraining the tunneling of large shareholders.Empirically,this study empirically found that the more minority shareholders attended AGMs,the weaker the tunneling of large shareholders.This influence results from the increase of the probability of veto on the proposals as well as attraction of more media attention,and is pronounced in firms with pyramidal shareholding structure,as well as firms in a better institutional environment.Third,at the management level,effective executive compensation contracts are important tools to alleviate the agency problem I faced by minority shareholders.Therefore,this study further examines the impact of minority shareholder activism on executive compensation.In theory,from the perspective of "effective contract view",minority shareholder activism can increase the recognition,evaluation and inquiries of minority shareholders on executive compensation contract,and attract and strengthen the internal and external supervision of independent directors and media.This can lead to the effectiveness of executive compensation contract.However,from the perspective of "rent extraction view",the performance pressure from minority shareholders’ concern will strengthen manament’s motivation to justify compensation by improving performance,which will reduce the effectiveness of executive compensation contract.The empirical analyses suggest that the more minority shareholders participate in AGMs,the stronger the pay-for-performance sensitivity(PPS).This effect is more pronounced when executive power is low and the business is not diversified,which support the logic of "effective contract view".Further analyses indicate that the minority shareholder activism affects PPS by increasing the possibility of independent directors’ dissention to the compensation proposals,and drawing media attention to the listed firms.Finally,the study rests on the influence of minority shareholder activism on corporate performance.Empirical evidences show that the more minority shareholders attend AGMs,the higher the return on assets(ROA)and Tobinq’s Q,indicating that minority shareholder activism improves the corporate operating and market performance.Furthermore,the restraining effect on tunneling and the improvement of assets utilization are two important mediators for these influences,corresponding to the governance effects of minority shareholder activism discussed above.In addition,the active minority shareholder crowd also increases the capital expenditure and R&D investment,and fosters firm main business growth,providing guarantee for corportate sustainable development.Although,these positive influences of minority shareholder activism did not gain the recognition of the capital market in the short time,it can boost investment return in the long run through better coporate governance and performance.In order to articulate the robustness of the conclusions,this study performed the following robustness checks:using instrumental variable(Ⅳ)2SLS to allievate causal endogeneity and omitted variable bias,using Heckman two-stage models to control self-selection endogeneity,using propensity score matching(PSM)method to mitigate potential functional form misspecification,using fixed effect(FE)and first order difference(FD)methods to eliminate individual effects,using two-way cluster model to correct serial correlation,as well as changing the measures of key variables and sample selection processes.As a result,all the findings are robust under above tests.Overall,this study systematically analyzes and tests the governance effects and the subsequent economic consequences of minority shareholder activism,and highlights the mechanism of "power of crowd".Its significance and contribution are as follows:First,this study makes a supplement to the literature on shareholder activism,especially on minority shareholder activism in the context of China.Under the "retail investor" structure of Chinese A-share capital market,this study distinguishes minority shareholders with minor stakes from non-controlling shareholders,and comprehensively and systematically tests the government effects of the former,which enriches the studies on minority shareholder activism in the context of China.Second,this study clarifies the mechanism of governance effect of minority shareholders.Compared with the focus on the stakes,this study directly emphasizes the population of minority shareholders’ participation,which is separated from the influence of voting rights to a large extent.In this way,it is easier to clarify the incremental governance effects of the power of active minority shareholder crowd,and provide a more explicit theoretical guidance to raise the rights awareness and participation of minority shareholders.Finally,this study responds to the improvement of minority shareholder protection,and the calls for the rights awareness and participation of minority shareholders.Based on the power of minority shareholder crowd,the empirical evidences can more effectively stimulate the rights awareness and participation of minority shareholders to a larger degree,so that further promote the improvement of corporate governance,and the high-quality development of listed firms and the whole capital market. |
