The determinants and effects of voluntary adoption of a cumulative voting system: Evidence from China

摘要

Using a unique sample of China’s listed firms, we find that firms with strong corporate governance are more likely to adopt the cumulative voting system (CVS) and CVS adoption improves firm performance. Further analyses show that the positive relationship between CVS adoption and firm performance is more significant for firms with less mutual funds’ ownership, in a weak firm information environment, and whose managers have more power. Finally, we find three channels – professionalism of board directors, controlling shareholders’ expropriation, and managerial entrenchment– through which CVS adoption affects firm performance. This study enriches the literature on corporate governance in general and the literature on the principal-principal problems in particular. Our findings also have important policy implications for minority shareholder protection.