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Foreign institutional investors’ certification and domestic minority shareholders’ mistrust

Author

Listed:
  • Jerry Cao
  • Yong Li
  • Xiaojuan Liu
  • William L. Megginson

Abstract

Using hand‐collected data from China's split share structure reform (SSSR) program, we show that foreign institutional investors’ certification mitigates domestic minority shareholders’ mistrust of controlling shareholders’ reform plans and facilitates the implementation of the SSSR. Domestic minority shareholders cast fewer dissenting votes, complete the SSSR more quickly but with lower compensation, and achieve higher stock return reactions in reforming firms with higher foreign institutional ownership. Foreign institutional investors’ prestige is a key factor in aligning domestic minority shareholders toward seeking long‐term payoffs. Our work reveals the positive role of foreign institutional investors’ certification in a salient reform of corporate governance.

Suggested Citation

  • Jerry Cao & Yong Li & Xiaojuan Liu & William L. Megginson, 2024. "Foreign institutional investors’ certification and domestic minority shareholders’ mistrust," Financial Management, Financial Management Association International, vol. 53(2), pages 267-289, June.
    • Handle: RePEc:bla:finmgt:v:53:y:2024:i:2:p:267-289
    DOI: 10.1111/fima.12450
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