Three Essays on Shareholders Conflicts and Director Behaviors

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Embargoed until 2025-10-19
Copyright: Wang, Qi
This dissertation examines various behaviors of directors and shareholders in China, a regime with concentrated ownership and conflicts between the controlling and minority shareholders. Chapter One documents shareholder-shareholder conflicts surrounding board decision-making in two consecutive processes. (1) Tunneling-related board proposal initiation is promoted (deterred) by the largest (minority) shareholders through their appointed directors. (2) Directors appointed by the largest shareholder (minority shareholders) agree (dissent) more on tunneling-related proposals in boardroom voting. Directors appointed by larger minority shareholders more strongly deter tunneling-related proposals’ initiation and dissent more in voting than those appointed by smaller ones. Minority shareholders’ monitoring against tunneling weakens if they are connected with the largest shareholder or management or when the largest shareholder is politically entrenched. Chapter Two finds that minority (the largest) shareholders sell (buy) more shares after their appointed directors dissent in boardroom voting. Smaller minority shareholders sell more than larger minority shareholders. Minority-shareholder-appointed directors’ dissent on tunneling-related (disclosure-related) proposals triggers negative (insignificant) price impacts, and the dissenting minority shareholders subsequently do not significantly sell or buy shares (significantly sell more shares), showing that ‘voice’ and ‘exit’ exhibit substitute (complement) effects. The phenomenon that smaller minority shareholders sell more than larger minority shareholders is mainly found in disclosure-related dissensions. When the largest-shareholder-appointed directors dissent on more disclosure-related proposals than tunneling-related ones, the ex-ante largest shareholding is smaller. However, the largest shareholding is still not too small, and buying for control is still not too costly; the dissenting largest shareholder buys more shares afterward. Chapter Three finds critical independent directors with more monitoring power (nomination, auditing, or compensation committee member, hereafter, ‘CRID’) mitigate tunneling. They pre-emptively hinder tunneling-related proposal initiation, and they dissent less on these kinds of proposals in board voting. Negative post-dissension career consequence helps explain why privately hindering proposals is more attractive than publicly dissenting. Once CRIDs dissent on tunneling-related proposals, shareholders and media react negatively. The adverse reactions of regulators and debtholders focus less on tunneling concerns than topics where they have greater monitoring legitimacy (e.g., disclosure). Greater CRID presence also appears to mitigate (substitute) minority-shareholder-appointed director dissension about tunneling-related proposals.
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PhD Doctorate
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