The bright and dark sides of minority shareholder protection: Evidence from the separate vote counts disclosure rule in China

Abstract

The separate vote counts (SVC) disclosure rule implemented in 2013 requires Chinese public firms to separately disclose the vote counts of minority shareholders for each proposal. Evaluating the policy's effectiveness in serving its goal of minority shareholder protection, we first find that SVC disclosure enhances minority shareholders' value by suppressing tunneling behaviors and increasing dividend payouts, leading to higher corporate valuation and stock returns. On the other hand, consistent with a principal-agent model that features the information disadvantage of minority shareholders, we find that SVC disclosure leads to lower investment efficiency among firms with higher information asymmetry. Additional tests highlight that counterbalances between majority shareholders, chairperson-CEO separation, and institutional ownership could act as internal and external governing measures that alleviate unintended consequences with respect to investment efficiency.