Do minority shareholder protection laws benefit investors? Evidence from a natural experiment on cross-listed firms

Good corporate governance practices are not universal. Unlike practices in institutional settings in developed countries, which have attracted most scholarly attention, corporate governance practices in emerging economies lean towards addressing principal-principal conflicts that stem from concentrated ownership. The study employs a difference-in-differences panel data design with matched samples of Chinese firms cross-listed in mainland China and Hong Kong (China) and of those listed only in Hong Kong (China) based on propensity score matching. It thus adopts a natural experimental setting – the promulgation of China’s Revised Securities Law in March 2020 – to pinpoint whether and how legal revisions of investor protection laws can really benefit investors. The findings show that independent directors in cross-listed firms turn over significantly more than those in firms listed only in Hong Kong (China). Also, it suggests that firms mainly replace departed directors with new directors from similar demographics. Furthermore, the study observes no evidence of significant changes in board independence in the short run. The findings suggest that policymakers should mind unintended consequences beyond the intended outcomes of the legal reforms on corporate governance, particularly the potential disproportionate impacts on smaller firms.