Research On Motivation And Implementing Effect Of Accumulated Voting System

Since the start of China’s capital market, direct voting has been widely applied across China’s public companies. However, direct voting is not conducive to the expression of minority shareholders of their aspirations and interests. The direct voting may become tolls of controlling shareholders for their expropriation of minority shareholders’interests. In this context, in order to protect the interests of minority shareholders of listed companies in China, the China Securities Regulatory Commission in2002issued regulation and introduced the cumulative voting system, which claimed that controlling shareholder stake in more than30%of the company should adopt the cumulative voting system, while controlling shareholder holds less than30%of the company have the right to decide their voting system independently.At present, researches on the cumulative voting system are mostly concentrated in the legal establishment and system development. Topics widely discussed includes the history of the cumulative voting system, the development and transformation of the system, whether the cumulative voting system should be used compulsion doctrine or license doctrine, the positive and negative effects of the cumulative voting system, and suggestions for improvement of the system-There are few empirical researches about incentives for implementation and effects of the cumulative voting system. We know that China Securities Regulatory Commission is not mandatory for listed companies whose controlling shareholder holds less than30%of the company, so what’s the incentive of their voluntary adoption of cumulative voting system? For companies which are forced to adopt a cumulative voting system or voluntarily adopted cumulative voting system or not in adoption of the system, are there obvious changes in directors? Represent the will of the majority shareholder board seats accounted for the change? Are there changes in directors who represent the controlling shareholders? Answers to these questions will not only help to understand the motivation and results of the implementation of the cumulative voting system, but also provide reference for companies which are not using cumulative voting system, market regulators and other market participants.Combined with the actual situation of the implementation of China’s cumulative voting system, this paper uses the method of empirical research, combing A-share listed company on the Main Board of the2001-2011periods, dividing the research objects into three categories:companies with mandatory adoption of cumulative voting system, companies with voluntarily adoption and companies without an adoption of cumulative voting system. First we study companies with voluntarily adoption and companies without an adoption of cumulative voting system, we select the corresponding financial indicators and company governance indicators to build a logic regression model to inspect the factors influencing companies in choosing voting system. Then the paper selected three dimensions as the study aspects:the change of directors, controlling shareholder’s proportion of board seats, tunneling, to study the effect of the implementation of the cumulative voting system. We adopt whether the company use cumulative voting as an explanatory variable, building a linear regression model, and further visits voluntary adoption and enforcement of the cumulative voting system in the actual impact of the adoption of cumulative voting system.The results of this study show that companies with high growth and high proportion of controlling shareholders have more motivation to adopt a cumulative voting system. There are no significant fluctuation of the members of the Board, and no significant change in tunneling if companies adopt cumulative voting system. The system may have some impact on reducing the proportion of board seats of major shareholders.