Using a sample of listed firms in China, this paper analyzes the shortterm market reaction and longterm economic impact of the adoption of the cumulative voting on corporate performance and corporate governance. With event study and differenceindifferences estimation methods, our results show that in the shortterm, the announcement of the cumulative voting system leads to 04% of the cumulative average abnormal returns during \[-7,1\] days window period (about 11% annually). In the long run, the cumulative voting system significantly improves the performance of listed companies. The improvement of performance is largely due to the improved corporate governance. Specifically, we find that firms with cumulative voting written in articles are using cumulative voting more frequently during director elections, having more board meetings, with higher independence level of the board of directors, with better shareholding structure, and with higher educational level of management teams. Our results also show that cumulative voting will, in some extent, reduce the large shareholders' “tunneling” of listed companies.

cumulative voting , ownership concentration , firm performance , corporate governance , related party transactions