Using a sample of listed firms in China, this paper analyzes the shortterm market reaction and longterm economic impact of the adoption of the cumulative voting on corporate performance and corporate governance. With event study and differenceindifferences estimation methods, our results show that in the shortterm, the announcement of the cumulative voting system leads to 04% 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.
