Foreign Institutional Investors’ Certification and Domestic Minority Shareholders’ Mistrust

Using hand-collected data from China’s split share structure reform (SSSR) programme, we theorise and show that the certification of foreign institutional investors mitigates domestic minority shareholders’ mistrust of controlling shareholders’ reform plans and facilitates the SSSR. Domestic minority shareholders cast fewer dissenting votes and complete the SSSR with higher speed but lower compensation in reforming firms that have greater foreign institutional ownership. Foreign institutional investors’ prestige is a key factor in aligning domestic minority shareholders towards seeking long-term payoffs. With hindsight, foreign institutional investors commit to the reform via greater value creation and governance enhancement in weak institutional environments. Our work reveals foreign institutional investors’ positive certification role in a salient corporate governance reform and brings space and process to the forefront of the research agenda on addressing shareholders’ opinion divergence in the international business literature