Abstract

ABSTRACT:

We examine whether large shareholders (other than the largest shareholder) could constrain the influence of the largest shareholder by electing more independent directors to the board. Moreover, we assess whether this constraining ability is related to the size of other large shareholders' ownership position relative to the largest shareholder. Using a sample of 13,951 firm-year observations from the unique Chinese capital market between 2004 and 2014, our empirical results indicate that other large shareholders can elect a larger number of independent directors to the board when their share ownership increases. However, these other large shareholders have increased voting power on the board (through a larger percentage of independent directors) only if the largest shareholder owns less than 30% of the company's shares. When the largest shareholder owns less than 30% of the shares, we find that other shareholder constraints are associated with a larger number of independent directors, a larger percentage of independent directors on the board and a larger board size. In addition, board size partially mediates the relationship between other shareholder constraints and the percentage of independent directors. For companies in which the largest shareholder owns at least 30% of the shares, our results indicate that other shareholder constraints are associated with a higher number of independent directors and larger boards, but are not associated with the percentage of independent directors. Moreover, the increased board size fully mediates the relationship between other shareholder constrains and the percentage of independent directors. A larger number of independent directors, without an increase in the percentage of independent directors, suggests that the relationship between other shareholder constraints and the percentage of independent directors is mainly driven by the other shareholder constraints/board size relationship, rather than by an increased percentage of independent directors. Our results indicate that minority shareholders may have a voice on the board, but greater board voting power is more difficult for the minority shareholder to obtain.

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Additional Information

ISSN
1548-2278
Print ISSN
0022-037X
Pages
pp. 95-111
Launched on MUSE
2021-05-19
Open Access
No
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