Minority Shareholders’ Dissent and Cost of Debt Financing: Evidence from Voting on Guarantee Proposals of Listed Companies in China

This study investigates the influence of minority shareholders’ dissent in mitigating agency conflicts related to guarantee proposals. Based on manually collected data on votes against or abstentions by minority shareholders on guarantee proposals for A-share listed companies in China from 2014 to 2018, we find that such dissent significantly increases the cost of debt financing. Increasing earnings forecast dispersion among analysts, coupled with heightened regulatory inquiries and sanctions, are plausible channels through which minority shareholder dissent could increase the cost of debt financing. Heterogeneity tests indicate that the impact of minority shareholder dissent on increasing debt financing costs is particularly pronounced in companies with active online shareholder voting, robust shareholder interaction, higher institutional ownership, more external guarantees, subsidiary guarantees, large guarantee amounts, non-state ownership, low government subsidies, and intense media attention. Additionally, the increased cost of debt financing due to minority shareholder dissent further restricts corporate investment and weakens competitive strength in the product market. This research underscores the significance of addressing agency dilemmas and protecting creditors in guarantee practices, improving guarantee quality, and promoting high-quality development of multi-level capital markets from the minority shareholders’ voting perspective.