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| Spillover Effects of Minority Shareholders' Activism on Bondholders' Wealth: An Empirical Study Based on Network Voting Data |
| ZENG Aimin, WU Wei, WU Yuhui
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School of Accounting, Zhejiang Gongshang University;
School of Management, Xiamen University |
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Abstract In Recent years, China's bond market has achieved rapid development.However, since China's first default case of “11 Chaori Bond” in 2014, the rigid bond repayment rule has been violated and bond default has occurred frequently.This has caused investors and regulatory authorities to worry about default risk in China's bond market because bond defaults not only harm the interests of investors but may also lead to systemic financial risk.At the corporate level, bond defaults are closely related to the financial performance, solvency, and information asymmetry of the issuers.Therefore, it is of great importance to seek innovative governance mechanisms that can help reduce information asymmetry, improve corporate performance, and strengthen financial stability to protect bondholders' wealth.
An important change that has occurred in China's corporate governance mechanisms in recent years is that minority shareholders have begun to actively participate in corporate decision-making through online voting.However, the consequences of minority shareholders' participation in corporate governance to safeguard their interests are unclear.Research generally suggests that minority shareholder activism positively affects the company and shareholder interests; however, few studies examine the impacts of such activism on external stakeholders.
Using online voting data from all listed companies in the Shenzhen Stock Exchange from 2008 to 2018, this paper explores spillover effects of minority shareholder activism on bondholders' wealth (who are among the most important external stakeholders of a company) and empirically examines the internal mechanism and moderating effect.The results show the following: (1) Although minority shareholders subjectively participate in corporate governance to protect their interests, their behavior can also significantly increase bondholders' wealth, and this positive spillover effect still exists after controlling for potential endogeneity; (2) Exploring its internal mechanism, it is found that minority shareholder activism does not significantly affect the quality of corporate information disclosure and that the positive spillover effects of this activism on the wealth of bondholders is mainly achieved through improving the company's performance and enhancing its financial stability; (3) Positive spillover effects are stronger when the internal governance environment of the company is poor, investors have learning effects, or external information channels work effectively.
The innovations and contributions of this paper are as follows.First, unlike previous studies focusing on the impact of minority shareholder activism on the company and shareholder interests, this paper examines the impact of such activism on bondholders' wealth, which may help regulatory authorities develop new ways to safeguard the interests of bondholders and promote the healthy development of the bond market.Second, based on corporate performance, financial stability, and information disclosure quality, this paper investigates the internal mechanism of the positive spillover effects of minority shareholders on bondholders' wealth, thus enriching research on the governance effect of minority shareholder activism.Third, by examining the potential factors affecting minority shareholder activism, this paper provides a means for minority shareholders to better participate in corporate governance through online voting.
Based on the above conclusions, we put forward the following policy suggestions: First, Regulatory authorities should strengthen the education and guidance of minority shareholders and effectively use the positive spillover effects of minority shareholder activism.Second,regulatory authorities should establish a better institutional environment to ensure the active participation of minority shareholders in corporate governance, and companies should provide convenient conditions to help minority shareholders make suggestions.In the practice,regulatory authorities should continue to promote the construction and effective use of online voting platforms and improve the relevant voting and trading rules; companies should adjust the traditional positioning of minority shareholders, optimize the corporate governance structure, improve the enthusiasm of minority shareholders to participate in corporate governance, and strengthen the education of minority shareholders so that they can participate in the company's decision-making more effectively and in more aspects.
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Received: 06 January 2021
Published: 01 January 2022
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