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Do Majority‐of‐Minority Shareholder Voting Rights Reduce Expropriation? Evidence from Related Party Transactions
Author(s) -
LI NAN
Publication year - 2021
Publication title -
journal of accounting research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 6.767
H-Index - 141
eISSN - 1475-679X
pISSN - 0021-8456
DOI - 10.1111/1475-679x.12357
Subject(s) - expropriation , shareholder , voting , business , majority rule , voting trust , accounting , monetary economics , stock (firearms) , law and economics , economics , finance , market economy , disapproval voting , corporate governance , law , political science , politics , mechanical engineering , engineering
In the presence of business groups, the expropriation through related party transactions (RPTs) is common and costly to minority shareholders. Using the setting of India's RPT voting rule, I find that a majority‐of‐minority shareholder voting mechanism helps mitigate expropriation. Minority shareholders actively raise their voice against RPT resolutions. A difference‐in‐differences analysis reveals that shareholder voting has a significant deterrence effect on RPT volume. I also find that stock markets react positively to the voting rule's passage, and that the rule makes Indian firms more attractive to foreign institutional investors.