The Impact Of Minority Shareholder Activism On Financial Restatement

China’s law and system are late and yet to be perfected,and the shareholding structure of listed enterprises is generally more concentrated than that of mature capital markets,so the agency conflict between major shareholders and minority shareholders is particularly acute in China’s market.Therefore,how to alleviate such agency conflicts is the top priority of protecting the rights and interests of small and medium-sized shareholders.In the past,the high-cost,high-difficulty and low-reward path to defend the rights of minority shareholders often chose to give up active supervision.In recent years,China has continued to adjust,innovate and improve the system and judicial aspects.Since 2004,China’s regulators have introduced the network voting system,cumulative voting system,classified voting system and investment service center to create a better institutional environment for minority shareholders to exercise their rights,and the new Securities Law,which came into effect in 2020,also emphasizes the protection of minority shareholders’ rights and interests in a special section to optimize the judicial environment for minority shareholders to participate in governance.The optimization of the exercise of rights has prompted small and medium-sized investors in China to strengthen their awareness of their rights and to be more proactive in exercising their rights and participating in corporate governance,which has led to intense discussions among scholars on its governance effects.Financial restatements reflect the later correction of financial errors caused by managerial errors,malicious manipulation,changes in accounting policies,etc.This phenomenon will send signals of poor management and high risk to external information seekers such as investors,which will trigger investors’ concerns about the future development of the company and immediate adverse reactions in the market.Accounting information and other information disclosed in financial reports are the most easily accessible and relied upon sources of information for listed companies by small and medium-sized investors,and they are also an important basis for investors’ decision making,so the research on the factors influencing corporate financial restatements is of great significance for the protection of the rights and interests of small and medium-sized shareholders.This paper investigates the effect of active voting by small and medium-sized shareholders on the likelihood of occurrence of corporate financial restatements based on the data of China’s listed companies in Shanghai and Shenzhen A shares from 2015-2021.The empirical results show that,firstly,small and medium shareholders’ activism in voting can reduce the likelihood of financial restatement of enterprises.Second,the study on small and medium shareholders’ activism and financial restatement under different institutional investors’ shareholding ratios shows that the negative relationship between small and medium shareholders’ activism and corporate financial restatement is more significant in firms with low institutional investors’ shareholding ratios.