Awakening of Minority Shareholders’ Rights Awareness under the Registration-based IPO System

【Authors】

CHEN Yunsen, YU Yao & HAN Huiyun

【WorkUnit】

【Abstract】

Enhancing minority shareholder participation is crucial for improving corporate governance and fostering the development of capital markets, particularly in emerging economies undergoing significant regulatory transitions. Historically, China’s capital markets prioritized capital raising over investor protection, resulting in passive minority shareholders—who represent over 96% of investor accounts—and limited engagement in corporate governance. This passivity has impeded market efficiency and growth. In response, China transitioned from an approval-based to a registration-based IPO system, aiming to strengthen investor protection through enhanced transparency and a more balanced investment-financing framework.
This study examines whether the registration-based IPO reform has effectively incentivized minority shareholders to participate more actively in corporate governance. Utilizing a unique, hand-collected dataset of voting records from Annual General Meetings （AGMs） of Chinese firms that went public between July 2019 and April 2023, we analyzed shareholder meetings held from 2019 to 2024, a period when both IPO systems coexisted. Our findings provide robust evidence that minority shareholders exhibit significantly higher voting participation under the registration-based system.
We identify two key drivers of this shift. First, the registration-based system reduces information acquisition costs, enhances the readability of annual reports, and increases media coverage, collectively encouraging minority shareholders to engage in corporate oversight. Second, the reform strengthens corporate disclosures and investor-firm communication, enabling shareholders to better collect and act on governance-related information. Further analysis reveals that the impact of enhanced transparency is particularly pronounced under specific conditions. Minority shareholders engage more in firms with low investor sentiment. Moreover, external factors such as stricter stock exchange oversight and higher institutional investor ownership amplify the reform’s effect.
This study makes three key contributions to existing literature. First, it shifts attention to minority shareholders, a critical yet often overlooked force in capital markets, addressing a gap in understanding the governance implications of IPO reforms. Second, it introduces a novel approach to tracking shareholder voting behavior, using official classifications. Third, it highlights the pivotal role of institutional settings—particularly oversight and disclosure—in fostering private enforcement for effective corporate governance in emerging markets.
Our findings hold significant implications for policymakers. Regulators should prioritize enhancing the quality and accessibility of corporate disclosures under the registration-based IPO system, not only by strengthening disclosure requirements but also by equipping investors with the tools to utilize disclosed information effectively. Additionally a well-coordinated regulatory framework with stringent oversight—leveraging stock exchanges to narrow the information gap through rigorous inquiries—is essential. Finally, fostering an informed investor culture is imperative, and targeted media campaigns and proactive institutional investor leadership can promote sustained shareholder engagement.
Future research should explore whether the observed increase in shareholder activism translates into substantial governance improvements and firm performance. These insights are valuable for other emerging markets considering similar reforms.

【KeyWords】

Registration-based IPO System, Shareholders Voting, Minority Shareholders’ Exercise of Rights, Investor Protection