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

Abstract

An ongoing debate in comparative corporate governance has been on what specific corporate governance arrangements matter in the governance of pubic firms worldwide. 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. Market reactions to the formal adoptions of cumulative voting were, however, negative on the whole. In this view, we argue that cumulative voting does not matter in China. This, it will be further argued, is attributed in large part to some defining attributes 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. The 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, both at firm-level and country-level.