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Does Cumulative Voting Matter? The Case of China: An Empirical Assessment

Published online by Cambridge University Press:  17 December 2014

Chao Xi
Affiliation:
PhD (London), MCIArb, Associate Professor, Assistant Dean (Graduate Studies) and Director of LLM Programmes, Faculty of Law, Chinese University of Hong Kong (CUHK)Director, Chinese Law Programme, Hong Kong Institute of Asia-Pacific Studies, CUHK; Research Associate, China Institute, SOAS, University of London; Director and Treasurer, European China Law Studies Association
Yugang Chen
Affiliation:
Professor of Finance, Sun Yat-Sen University Business School
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Abstract

What specific corporate governance arrangements matter in the governance of public firms worldwide has been the subject of an ongoing debate in comparative corporate governance. In this debate, the role of cumulative voting has attracted increasing attention. Using a unique, hand-collected dataset of formal adoptions of cumulative voting in 1,060 Chinese listed firms during the period from 2002 through 2012, we extend the growing comparative literature to encompass, for the first time, the case of China. Our empirical inquiry shows that an overwhelming majority of the sample Chinese listed firms have formally embraced cumulative voting. Whereas cumulative voting is mandatory for blockholder firms (i.e., firms with a blockholder controlling more than 30 per cent of the outstanding shares) and elective for non-blockholder firms, the levels of cumulative voting adoption were similarly high by the end of 2012 (95.7 per cent and 89.3 per cent, respectively). Market reactions to the formal adoptions of cumulative voting have, however, been negative on the whole. As such, we argue that cumulative voting does not matter in China. This, as will be further argued, is attributed in large part to certain defining characteristics of the adopting firms, more specifically, the comparatively small size of their boards, the relatively low shareholding levels of (large) minority shareholders, as well as the pervasive presence of the overwhelmingly dominant shareholder. Weak public enforcement by the regulatory authorities and the near-absence of private enforcement through shareholder lawsuits are also important contributing factors. This research supports the view that the value of a particular corporate governance measure is dependent on the context, at both firm and country level. The research also has implications for the growing discourse on the global proliferation of corporate governance codes.

Type
Articles
Copyright
Copyright © T.M.C. Asser Press and the Authors 2014 

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