Shareholder Activism:Evidence From China's Split Share Structure Reform

The purpose of this paper is to investigate the function of institutional investors as active participants in the corporate governance of targeted companies in emerging capital markets.In 2005,the split share structure reform initiated in China and its negotiating character present us with an ideal research environment.Before the reform,the ownership structure of public companies was highly concentrated in one or several block-holders referred to as non-tradable shareholders,usually the state or the company's founding family.The other side of the negotiations table was represented by the tradable shareholders that primarily held a minority stake in the publicly traded companies and among which institutional investors were the largest tradable shares'owners.In the course of the reform,the non-tradable shareholders negotiated on a compensation plan with the tradable shareholders with the trading rights of their shares in return.To determine whether institutional investors are effective shareholder activists during the negotiations we use regression analysis that studies the relationship between institutional investors and the agreed compensation.This paper's empirical results show that the impact of institutional investors on the compensation is insignificant.There is not enough evidence to support the claim that institutional investors are influential in the reform's negotiation process.These findings provide support for the argument that shareholder activism in China is still in its infancy.