Motivation versus Action: Shareholder activism by non-controlling shareholders in China

Motivation versus Action: Shareholder activism by non-controlling shareholders in China | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article Motivation versus Action: Shareholder activism by non-controlling shareholders in China Yujia Yin, Kai Wang, Lihong Wang This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-8032944/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract Using a sample of non-financial listed firms in China with non-controlling large shareholders (NCLSs) from 2006 to 2022, we examine the determinants of NCLSs’ ability to engage in shareholder activism through director appointments and analyze how institutional environments shape these processes. We find that NCLSs are less likely to appoint directors when entering a firm through direct purchases in the secondary market or when the controlling shareholders increase their holdings. By contrast, NCLSs with a relatively greater power or business ties to the firm are more likely to engage in activism. Additional analyses reveal that the negative effects of direct entry and controlling shareholders’ increased holdings are contingent on contextual factors such as property nature, corporate culture, and marketization levels. We further find that NCLSs’ activism can significantly enhance firm value. Overall, our findings highlight that NCLSs’ activism is shaped not only by their own motivations but also by their dynamic interactions with controlling shareholders. The study provides new insights into the interplay between multiple large shareholders and shareholder activism in emerging markets, and underscores the importance of collaborative governance strategies among large shareholders in concentrated ownership. JEL codes: G32, G34, O16 Corporate governance Shareholder activism Non-controlling large shareholders Director’s appointment Multiple large shareholders 1. Introduction Since the 1980s, there has been a notable uptick in shareholder activism within developed countries, wherein investors are increasingly engaging in corporate governance rather than merely selling their shares. Some researchers describe shareholder activism as investors actively monitoring the management (Blair, 1995 ; Gillan and Starks, 2000 ). Goranova and Ryan ( 2014 ) emphasize that activists’ aim to influence management rather than take over the company themselves and argue that shareholder activism has evolved into a dynamic institutional force not only in corporate governance but also in social, political, and environmental spheres. Many studies have explored the factors driving the rise of shareholder activism, primarily focusing on firm-level drivers, such as poor performance (Thomas and Cotter, 2007 ; Greenwood and Schor, 2009 ; Boyson and Mooradian, 2011), high leverage (Renneboog and Szilagyi, 2011 ), large firm size (Song and Szewczyk, 2003 ; Cai and Walkling, 2011 ) and low insider ownership (Carleton et al., 1998 ; Ertimur et al., 2010 ). In this paper, however, we focus on when new shareholders are willing to engage in shareholder activism, whether and how their ability to do so is influenced, especially by the dominant owner. While shareholder proposals, dissent voting, and ownership thresholds are the most frequently examined measures of activism globally (Aggarwal et al., 2015 ; Baloria et al., 2019 ; Bebchuk et al., 2020 ; Brochet et al., 2021 ), director appointments also represent an important channel of influence, though they have attracted relatively limited scholarly attention given the high shareholding thresholds typically required for board nominations. Against the backdrop of China’s concentrated ownership structure, however, securing board seats becomes a pivotal mechanism through which non-controlling large shareholders (NCLSs) can implement activism effectively under the influence of dominant owners. In such settings, where decision-making power is largely concentrated in the hands of controllers, formal representation on the board provides NCLSs with a direct and institutionalized channel to participate in firms’ operational and governance decisions (Dou et al., 2016 ; Jiang and Liu, 2021 ; Swanson et al., 2022 ). Accordingly, examining NCLSs’ activism through board representation is essential for understanding the power dynamics and strategic interactions among large shareholders in concentrated ownership structures. Notably, this pattern reflects not only structural realities of concentrated ownership but also deep-rooted cultural orientations. Traditional Chinese culture values he (harmony) over confrontation, emphasizing that different elements should work together and support each other as parts of a unified whole (Cheng, 2009 ; Nelson, 2011 ; Yuan and Jiang, 2025 ). It is often claimed that the Yijing way of thinking characterizes the basic mode of Chinese philosophical thinking (Cheng, 2009 ). In the Yijing , the “Litigation” Hexagram ( Song Gua ) advises that disputes, if anticipated and addressed early, can be dissolved through negotiation and adjustment rather than escalated into open confrontation in the shareholder meeting. Consistent with this cultural preference for harmony and preemptive resolution, NCLSs in China tend to pursue activism through board representation as an embedded and institutionally feasible channel of influence. By contrast, shareholder activism in western markets typically begins with more visible and public interventions, such as proposals, dissent voting, or litigation, before escalating to proxy contests. In fact, whether newly-entered large shareholder can conduct shareholder activism through board appointment depends not only on their motivation to intervene but also on their ability to act. When shareholders accumulate sufficient stakes to become large shareholders, they have the motivation and the potential ability to engage in shareholder activism compared to minority shareholders, who are often prone to free-riding. Prior studies suggest that activism is the most effective when ownership blocks are formed (Denes et al., 2017). Yet, the ability of large shareholders to translate motivation into action is not guaranteed. This challenge is particularly prominent in concentrated ownership structure: newly-entered NCLSs, despite their inclination to monitor incumbents, often face constraints imposed by controlling shareholders whose interests may diverge from NCLSs’ (Song et al., 2020 ). These inherent conflicts raise critical questions: Can NCLSs effectively appoint directors to secure governance influence in concentrated ownership structures? And under what conditions are their activism efforts more likely to succeed? Addressing the factors shaping NCLSs’ ability to conduct activism is therefore crucial. It not only advances theories of shareholder activism by unpacking the “motivation-action gap” in interactions between controlling and non-controlling shareholders, but also provides insight into the conditions that foster more balanced and collaborative governance in concentrated ownership settings. China offers a distinctive setting for studying the factors influencing shareholder activism by NCLSs for three reasons. First, its concentrated ownership structure, coupled with ongoing mixed-ownership reform, provides a unique institutional environment for examining how shareholder interactions shape activism. Second, in Chinese capital market where minority shareholders typically lack sufficient protection and voice, NCLSs serve as a critical governance force by mitigating agency costs and information asymmetry (Jiang et al., 2018 ; Chen et al., 2019 ; Rossetto et al., 2023), making their activism a key lever for improving corporate governance. Third, China’s traditional culture, which values harmony and non-confrontational solutions, makes director appointments a culturally resonant and institutionally feasible channel for NCLSs to exercise influence. Within this context, we focus specifically on the activism of privately controlled NCLSs. On the one hand, the mixed-ownership reform has significantly spurred non-state capital investment (Chen et al., 2023 ), expanding privately controlled NCLSs’ presence in both privately controlled firms and state-owned enterprises (SOEs) and motivating them to pursue board representation as a means of governance influence. On the other hand, unlike state-owned investors, who are constrained by policy mandates and often lack incentives due to the “absent owner” problem, privately controlled NCLSs in China exhibit stronger motivations for activism once they accumulate significant shareholdings, similar to active institutional investors in Western economies. However, their efforts are frequently curtailed by dominant owners and weak investor protections. This tension between strong motivation and structural constraints underscores the urgency of studying when and how privately controlled NCLSs can effectively translate their activism intentions into action. To isolate the activism of privately controlled NCLSs and minimize distortions from state-driven policies, this study examines a sample of non-financial listed companies on the Shanghai and Shenzhen Stock Exchanges from 2006 to 2022, where the entry of privately controlled NCLSs has led to ownership structures with multiple large shareholders. Drawing on Goranova and Ryan ( 2014 ), we define shareholder activism as the active involvement of non-controlling shareholders in corporate governance, with the aim of influencing corporate decisions to achieve their own interests. More exactly, to investigate the factors shaping NCLSs’ activism, this study develops a sequential framework. We begin with the entry mode, which establishes the initial dynamics of interaction. In China, where shareholder protection is weak and incumbents are highly sensitive to control threats, direct purchases in the secondary markets by NCLSs are likely to trigger defensive concerns, prompting controlling shareholders to adopt exclusionary tactics that limit activism. We then examine the defensive responses of controlling shareholders, focusing on their shareholding increases as a means of consolidating control and marginalizing new entrants. Finally, we identify conditions for NCLSs’ activism to become feasible. Drawing on resource dependence theory, we argue that higher relative power and business ties can enhance the bargaining position of NCLSs, enabling them to negotiate more effectively with dominant owners and exert an influence through board appointments. In this way, direct secondary market entry and controlling shareholders’ defense act as obstacles, while relative power and business ties provide leverage, together shaping whether NCLSs’ motivation can be converted into board-level influence. Our empirical results indicate that NCLSs entering through direct purchases in the secondary market face greater challenges in exercising activism via director appointments. Similarly, when controlling shareholders increase their stakes, the likelihood that NCLSs can secure board seats is substantially reduced. By contrast, NCLSs with a greater relative power and stronger business ties are more capable of engaging in activism. Additional analyses reveal that the constraining effects of direct purchases and controlling shareholders’ increased holdings are evident under conditions of non-state ownership, low collaboration culture, and high marketization. Moreover, we find that board representation as a form of activism by NCLSs can significantly enhance firm value. Arguably, this study makes three key contributions. First, we deepen the understanding of the determinants of NCLSs’ activism and the institutional contingencies that shape it. Unlike prior research, which emphasizes firm-level, activist-level, or regulatory triggers of activism (Ryan and Schneider, 2002 ; Judge et al., 2010 ; Maffett et al., 2022 ), our findings reveal that outcomes are conditioned by the interaction between NCLSs and controlling shareholders. Specifically, we show that factors such as NCLSs’ entry mode, changes in controlling shareholders’ shareholdings, relative power and existing business ties directly influence whether activism motivations translate into action. In addition, ownership type, collaborative norms, and the degree of marketization further moderate these dynamics, offering a more nuanced view of the antecedents of activism in concentrated ownership structures. Second, we conceptualize shareholder activism as a negotiated governance mechanism among multiple large shareholders with particular attention to director appointments, a critical yet understudied channel. While director appointments are widely recognized as a key way for shareholders to influence corporate decisions, most existing empirical studies prioritize more public, adversarial forms of activism, such as shareholder proposals, dissent, or litigation (Ertimur et al., 2011 ; Cvijanovic et al., 2016 ; Gillan et al., 2023 ; Xie et al. 2024 ). In contrast, our study investigates NCLSs’ activism through director appointments, and based on a large sample, unpacks the power pathways and communication channels between NCLSs and dominant controlling shareholders. By analyzing the bargaining and communication channels between NCLSs and dominant controlling shareholders, this study sheds light on how NCLSs can exert meaningful governance influence and highlights collaboration, rather than confrontation, as a distinctive mode of activism. Finally, we extend the shareholder activism literature from dispersed to concentrated ownership structures. Much of the prior literature has focused on institutional investor activism in Western markets with dispersed ownership structures (Crespi and Renneboog, 2010 ; Bebchuk et al., 2015 ; Cvijanovic et al., 2016 ; Cai et al., 2025 ), leaving the dynamics of activism under concentrated ownership largely unexplored. Our analysis of the Chinese context addresses this gap by demonstrating how dominant shareholders and weak investor protections uniquely shape NCLSs’ activism, constraining direct challenges while simultaneously amplifying the relevance of relational and collaborative tactics such as director appointments. This extension fills an important gap in the literature and provides a contextually grounded analytical lens for understanding shareholder activism in emerging markets, contributing to the growing discourse on governance in concentrated ownership environments (Katelouzou et al., 2024 ). The rest of paper is organized as follows: The second part includes theoretical analysis and hypotheses. The third part presents the research design, providing a detailed description of the sample selection, data sources, variable measurement, and model setting, along with descriptive statistical analysis. The fourth section reports the empirical tests and results of the hypotheses, incorporating includes additional analyses and robustness checks. Finally, the paper concludes with a comprehensive summary. 2. Development of hypotheses 2.1. Entry mode and NCLSs’ activism The NCLSs’ activism can be influenced by their modes of entry into a company. Different entry modes can signal distinct relations between newly-entered NCLSs and controlling shareholders, which in turn influence the newcomers’ capacity to enact activism. Investors in China typically enter listed companies through direct purchases in the secondary market, negotiated transfers, or non-public issuance of shares. Compared to other entry modes, direct secondary market purchases may pose more obstacles for NCLSs in implementing shareholder activism. On the one hand, when NCLSs enter listed companies by directly purchasing shares in the secondary market, the absence of negotiation processes may make it harder for them to gain support from controlling shareholders and managers for shareholder activism. This direct entry mode makes it challenging for the controlling shareholders to accurately assess the newcomers’ intentions and impact, potentially leading to restrictions on their activism. In contrast, entering through negotiations enables NCLSs to engage with the entrenched incumbents on issues such as board structure and decision-making authority, thereby reducing information asymmetry and fostering a more cooperative environment for activism. On the other hand, when an investor purchases a substantial number of shares in the secondary market to become a large shareholder, it may be perceived as a potential threat to the company’s control structure. In other word, the entry of NCLSs through direct purchases of significant shares can pose challenges for controlling shareholder in safeguarding his/her interests. This is because active NCLSs are often more inclined to seek greater influence or collaborate with external parties to challenge the controlling shareholder’s dominance over the company. Corum and Levit ( 2019 ), for example, study Subgame Perfect Equilibria in pure strategies and solve the game backward, prove that activist investors possess an inherent advantage compared to bidders in pressuring entrenched incumbents to sell. Therefore, when controlling shareholders perceive a potential threat to their control due to NCLSs purchasing shares directly in the secondary market and being motivated to engage in shareholder activism, they are more likely to restrict these newcomers from obtaining board seats and exerting influence through activism. In summary, the lack of negotiation process and potential threat to control resulting from directly purchasing shares in the secondary market restrict the ability of NCLSs to achieve shareholder activism. As such, we propose the following hypothesis: Hypothesis 1 When NCLSs enter the company through purchasing directly in the secondary market, they are less likely to realize shareholder activism by appointing directors. 2.2. Change of controller’s shareholdings and NCLSs’ activism A substantial body of studies within the Chinese context suggest that the “profit-seeking nature” of non-state shareholders makes them have a strong incentive to monitor the management and operations of listed companies, thereby mitigating agency costs by constraining insider opportunism (Zhang et al., 2022 ; Wang et al., 2023b ). Shareholder activism by NCLSs can restrict the ability of controlling shareholders to derive private benefits of control. Therefore, the controlling shareholders who seek to reinforce their control may take more stringent actions to limit shareholder activism by NCLSs. First, when controlling shareholders increase their shareholdings, their intention to strengthen control may lead them to adopt a more defensive stance toward the activism of newly-entered NCLSs. By reinforcing their control, controlling shareholders can secure private benefits (Johnson et al., 2000 ). For instance, Dyck and Zingales ( 2004 ) argue that, beyond the “psychic” value and perquisites associated with control, controlling shareholders may exploit their informational advantage to pursue personal investment opportunities, capturing private benefits of control at the expense of other shareholders (see also Heugens et al., 2009). The activism of NCLSs, particularly through the appointment of directors, can threaten this ability by increasing oversight of the controlling shareholders’ actions and limiting their capacity to extract private benefits (Kesner and Johnson, 1990 ; Iwasaki, 2008 ). Thus, controlling shareholders, particularly when they increase their holdings, are incentivized to block NCLSs’ efforts to gain board representation, thereby safeguarding their control and the associated private benefits. Second, controlling shareholders who increase their holdings also gain more power to effectively block NCLSs’ activism. As Emerson ( 1962 ) posits, power is rooted in the dependency of others. When controlling shareholders demonstrate confidence in the company’s future by increasing their investment, they reduce their reliance on the resources or participation of NCLSs. This diminished dependency weakens the bargaining power of NCLSs, making it more difficult for them to negotiate for board seats to influence decision-making. As a result, controlling shareholders are in a stronger position to resist any activist efforts by NCLSs, further consolidating their control over the company. Based on the above analysis, we propose the following hypothesis: Hypothesis 2 When the controlling shareholder increases his/her stake, NCLSs are less likely to realize shareholder activism by appointing directors. 2.3. Relative power and NCLSs’ activism Numerous studies on shareholder activism have shown a positive relation between the rise of institutional investor activism and their shareholdings (Smith, 1996 ; Gillan and Starks, 2000 ). However, in companies with multiple large shareholders, the influence of a newly-entered large shareholder is determined not only by their own shareholdings but also by the relative power dynamics between them and the controlling shareholder. As Emerson ( 1962 ) argues, power is not an inherent attribute of an actor but a property of social relations. In line with this, for NCLSs to exert significant influence, a relatively large ownership percentage is crucial. For instance, Cao et al. ( 2019 ), using a sample of Chinese listed firms from 2008 to 2015, find that NCLSs can effectively mitigate the entrenchment effects of controlling shareholders only when their power is more balanced with that of the controller. Additionally, Wang et al. ( 2023a ) show that a smaller shareholding gap between the second-largest and controlling shareholder can diminish the negative impact of the latter’s shareholding ratio on cash dividends by using the data of China’s A-share listed companies from 2007 to 2017. In this study, when NCLSs possess a higher shareholding ratio relative to controlling shareholders, they are better equipped to counterbalance the controlling shareholder’s influence on corporate governance and strategy. Given the pivotal role of boards in corporate governance and internal control (Gillan, 2006 ), NCLSs with higher relative power are more capable of exerting shareholder activism through director appointments. This not only signals their commitment to governance but also enhances their ability to impact crucial corporate decisions. Conversely, if NCLSs possess relative less power, their ability to secure board positions and enact activism may be significantly hindered, regardless of their motivation. Based on the above analysis, we thereby propose the following hypothesis: Hypothesis 3 When the relative power of NCLSs to that of the controlling shareholder is higher, they are more likely to realize shareholder activism by appointing directors. 2.4. Business ties and NCLSs’ activism According to the resource dependence theory, newly-entered NCLSs with business ties to a listed company or those embedded within the company’s supply chain possess valuable resources, such as supply chain integration or market access. These resources significantly enhance their bargaining power in corporate governance. As a result, NCLSs are better positioned to negotiate for board seats, thereby gaining greater influence over the company’s strategy and decision-making processes. Securing board representation allows these large shareholders to align strategic objectives, promote resource complementarity, and facilitate the flow of critical information. Ultimately, such involvement fosters long-term strategic collaboration, maximizing mutual benefits for both controlling shareholders and NCLSs. Furthermore, the existence of business connection can enhance trust and communication between NCLSs and controlling shareholders, which is crucial for NCLSs to gain support for appointing directors to engage in shareholder activism. As noted by Cvijanovic et al. ( 2016 ), institutional investors with significant business ties to the firms in which they invest are more likely to foster an improved communication with management. Similarly, in the context of NCLSs in China, a potential business relationship can increase the level of trust between controlling shareholders and the newcomers, alleviating concerns about potential threats to control. This trust can encourage controlling shareholders to support the participation of NCLSs in corporate governance by allowing them to appoint directors. Based on the above analysis, we thereby propose the following hypothesis: Hypothesis 4 When NCLSs have business ties with the invested firm, they are more likely to realize shareholder activism by appointing directors. 3. Methodology 3.1 Data and sample We collect data from non-financial companies listed on the Shanghai Stock Exchange and Shenzhen Stock Exchange from 2006 to 2022. Choosing 2006 as the starting year is because, before the equity reform in 2005, approximately two-thirds of the A-shares of Chinese listed companies were non-tradeable, making it difficult for other investors to accumulate sufficient shares to exert an influence (Chen et al., 2019). Financial companies are excluded due to the unique nature of their business, with financial data, performance indicators, and operational methods differing from non-financial companies. Subsequently, we select a subset of A-share listed companies that have newly-entered non-controlling large shareholders, ensuring that these shareholders contribute to a structure with multiple large shareholders, which is maintained for at least three years. Observations where the newly entered shareholders are state-owned entities are excluded, as our focus is specifically on privately controlled NCLSs. Specifically, privately controlled NCLSs are defined as shareholders who are not affiliated with state-owned entities, government agencies, or the public sector, but who hold a significant stake in the company without exercising controlling power. We adopt a 5% shareholding threshold to define large shareholders. This threshold accounts for the cumulative holdings of “acting in concert” as disclosed in financial statements and is calculated based on the combined shareholdings of shareholders and their related parties (Jiang et al., 2018; Chen et al., 2019). Our determination of acting in concert is manually collected from annual reports. The final sample consists of 527 companies with 926 shareholder-year observations. To assess the implementation of shareholder activism by newly-entered NCLSs, we manually collect data on director appointments. First, we identify the years when NCLSs enter companies. Subsequently, we compare the board members in the current year with those in the previous year to identify new appointments. We then obtain the past employment information of directors from their profiles in annual reports to ascertain any affiliations with the new shareholders. For individual shareholders, they are assumed to be self-appointed if they serve as directors of the listed company. If the newly-entered large shareholder is a legal entity, we check for any past or present executive roles held by directors within the shareholder’s company. Our analysis reveals that in 162 instances, newly-entered NCLSs appoint directors, representing 27.5% of our total sample. We identify NCLSs’ entry modes from company announcements and annual reports. The operational scope for NCLSs is manually collected from Chinese National Enterprise Credit Information Publicity System (NECIPS), a government-initiated registry providing business license information, including establishment date, location, and business scope (see also Gao et al., 2023). Firm-level data are sourced from the CSMAR database, supplemented by annual reports if necessary. 3.2 Variable measurements To measure shareholder activism, we use the appointment of directors as a proxy, including the variables N_Board and Rate_Board . The former is defined as the number of directors appointed by NCLSs in the year of entry, while the latter is defined as the proportion of such appointments relative to the total number of directors. For key explanatory variables, the entry mode is captured by a dummy variable Direct , which equals one if the NCLSs enter through direct purchases in the secondary market. The change of the controller’s shareholding is measured by the variable Change , calculating the annual change rate in the shareholding ratio of controlling shareholder. We use the variable Relative to measure relative power, which represents the proportion of shares held by the newly-entered NCLSs and their related parties relative to those held by the controlling shareholders and their related parties. Business ties are represented by a dummy variable Tie , which equals one if the business of NCLSs is part of the invested listed company’s supply chain, either in the upstream or downstream sectors, and zero otherwise. Regarding control variables, we include several firm-level control variables, which are firm size ( Size ) (= the natural logarithm of total assets), leverage ( Lev ) (= the ratio of total liabilities to total assets), return on asset ( ROA ) (=the ratio of net profit to total assets), growth rate of assets ( Growth ) (= the increase rate of total assets), capital expenditure ( Capital ) (= the ratio of capital expenditure to total assets) and firm age ( Age ) (= the natural logarithm of the number of years the firm is listed on the Chinese A-share plus one). Additionally, we control for several corporate governance variables, including the proportion of shares held by the controlling shareholder ( Top ) (=the ratio of shares held by the controlling shareholders and their related parties), the size of board ( Board ) (= the natural logarithm of the number of board members), independent directors ( Indboard ) (= the percentage of independent directors to the total number of board members), CEO duality ( Dual ) (= a dummy variable equals one when the chairman and CEO are the same individual, and zero otherwise), managerial shareholding ( Mshare ) (= the fraction of shares owned by the top management team divided by total shares) and institutional ownership (Institution) (= the fraction of shares owned by the institutional investors divided by total shares). To minimize the impact of outliers on the research results, all continuous variables are winsorized at the 1st and 99th percentiles. Appendix provides definitions for the main variables used in this study. 3.3 Model To examine the influence of interactions between large shareholders on the activism of NCLSs, we utilize the following model (1), $$\:\begin{array}{c}{\text{Y}}_{i,t}\text{=}\text{α}+\text{β}{X}_{i,t}+\eta\text{C}\text{o}\text{n}\text{t}\text{r}\text{o}\text{l}\text{s}+{\mu\:}_{t}+{\omega\:}_{j}+{\epsilon\:}_{i,t}\#\left(1\right)\end{array}$$ Y represents the dependent variables, i.e., the appointment of directors ( N_Board and Rate_Board ). X denotes the key explanatory variables, representing the entry mode ( Direct ), change of controller’s shareholding ( Change ), relative power ( Relative ) and business ties ( Tie ). Controls represent the control variables, lagged by one period to address endogeneity, except for listing age ( Age ). In addition, we control for year fixed effects ( \(\:\mu\:\) ) and industry fixed effects ( \(\:\omega\:\) ) based on three-digit CSRC codes. The coefficient of interest, \(\:\beta\:\) , helps test our hypotheses regarding the influence of entry mode, change of controller’s shareholding, relative power, and business ties on NCLSs’ activism. 3.4 Descriptive statistics and univariate analysis Table 1 presents descriptive statistics for the main variables. In our sample, 17.49% of NCLSs appoint at least one director, with the maximum number reaching four directors. Among those appointing directors, 84.57% appoint only one director. Across the entire sample, these appointments constitute an average of 2.4% of total board membership, peaking at 22.2%. For explanatory variables, 13.4% of NCLSs enter through direct purchases in the secondary market. On average, the controlling shareholders and their related parties reduce their stakes by 11.3% in the sample, with some cases experiencing increases up to 8.8%. Additionally, the average shareholding of NCLSs relative to the controlling shareholder is 33.2%, and 16.0% of NCLSs have business ties with the invested firm. The closeness of the means and medians for continuous variables suggests a reasonable distribution within the sample. Table 2 reports the univariate analysis results, categorizing observations by entry mode, change of controller’s shareholdings, relative power and business ties. We investigate the significance of the differences across these subsamples by employing a parametric t test as well as a nonparametric Wilcoxon test. Specifically, in Panel A, grouped by entry mode, NCLSs enter through direct purchases in the secondary market are less likely to appoint directors for shareholder activism than others, and the differences are statistically significant, providing a preliminary support for Hypothesis 1 . Panel B divides observations by the change of controller’s shareholdings, revealing that as the change rate of controller’s shareholdings rises, the directors appointed by NCLSs decrease. The significant differences preliminarily confirm Hypothesis 2 . As shown in Panel C, grouped by relative power, a relative higher shareholding of newly-entered NCLSs to controllers correlates with an increase of director appointments, supporting Hypothesis 3 . In Panel D, grouped by business ties, NCLSs who have business ties with the invested firm are more likely to appoint directors to engage in activism than others, and the differences are statistically significant, providing a support for Hypothesis 4 . 4. Results 4.1. Entry mode and NCLSs’ activism Table 3 reports the impact of entry mode on the implementation of shareholder activism by newly-entered NCLSs. In Panel A and Panel B, we respectively use N_Board and Rate_Board as the dependent variable to capture shareholder activism. More exactly, in the first column of each panel, we only include Direct in the model and control for industry and year fixed effects. Then, in the second column of each panel, we add firm-level control variables. Finally, in the third column of each panel, we include governance-related control variables. Following Petersen ( 2009 ), standard errors of the regression results are clustered at the firm level. The empirical results show that the coefficient of Direct is significantly negative in all regression models. This indicates that when entering the company through purchasing directly in the secondary market, newly-entered NCLSs find it more difficult to appoint directors, providing a strong empirical support for Hypothesis 1 . These findings suggest that an effective communication and negotiation between newly-entered shareholders and controlling shareholders are crucial for the newcomers to secure board appointments for shareholder activism. Direct purchases in the secondary market, without prior communication, can trigger defensive actions from the controlling shareholder, as such actions may raise concerns about potential threats to control. This, in turn, creates significant obstacles for newly-entered NCLSs in gaining board representation. As such, our results suggest that pre-entry communication plays a critical role in influencing the likelihood of newcomers successfully appointing directors in shareholder activism, highlighting the importance of establishing trust and dialogue before entering the company. For the control variables, we find that the growth rate of assets, managerial shareholding and institutional ownership are statistically negatively correlated with the appointment of directors by newly-entered NCLSs. 4.2. Change of controller’s shareholdings and NCLSs’ activism Table 4 examines how the change of controller’s shareholdings influences shareholder activism by newly-entered NCLSs. The structure of the table is consistent with that of Table 3 . The empirical results show that the coefficient of Change is significantly negative in all models. This finding indicates that as controlling shareholders increase their stake to consolidate control, it becomes more difficult for newly-entered NCLSs to appoint directors, thus supporting Hypothesis 2 . This is likely because, as controlling shareholders strengthen their control, they not only solidify their decision-making power but also reduce their reliance on external investors, making them less inclined to accommodate other large shareholders in governance. As a result, newly-entered NCLSs face greater barriers in gaining board representation. This result thus highlights the significant impact of controlling shareholders’ attitudes toward control rights on shareholder activism by newly-entered NCLSs. 4.3. Relative power and NCLSs’ activism Table 5 shows the results of the impact of relative power on shareholder activism by newly-entered NCLSs. The structure of the table is consistent with that of Table 3 . The empirical results suggest that the greater the relative power of newly-entered NCLSs compared to controlling shareholder, the more likely they are to appoint directors to the board. This could be attributed to the fact that when NCLSs have a relatively higher shareholding proportion, both their motivation and ability to implement shareholder activism are enhanced. The higher relative power not only boosts their bargaining position but also facilitates more effective negotiation with controlling shareholder, increasing their ability to seek more board seats to actively influence company decisions and protect their own interests. As such, our findings support Hypothesis 3 , confirming that relatively higher shareholding proportions of NCLSs are positively correlated with an increase of director appointments, while a relatively lower power constrains NCLSs’ activism despite existing motivations. These findings underscore the critical role of power dynamics between new entrants and entrenched incumbents in shaping the landscape of shareholder activism. 4.4. Business ties and NCLSs’ activism Table 6 explores the impact of business ties on shareholder activism by newly-entered NCLSs. The structure of the table is consistent with that of Table 3 . As shown in Table 6 , the coefficient of Tie is significantly positive across all models, indicating that NCLSs with business ties to the invested firm are more likely to appoint directors, supporting Hypothesis 4 . This result can be explained by the fact that when NCLSs are part of the invested company’s supply chain, the resources they bring grant them greater bargaining power in securing board appointments for shareholder activism. Furthermore, these business ties facilitate increased communication and trust, which helps alleviate concerns about control contests and reduce information asymmetry between the new shareholders and the controlling shareholder. This, in turn, makes the controlling shareholder more willing to accept NCLSs in governance to lower transaction costs and improve operational efficiency. These findings thus suggest that establishing business ties and owning resources valuable to the company are critical factors for newly-entered NCLSs to successfully engage in shareholder activism. 4.5. Further analyses 4.5.1. Property nature and NCLSs’ activism State-owned controlling shareholders are generally perceived to possess more power compared to non-state-owned counterparts, exerting influence beyond mere economic factors. This perception is largely attributed to government support, as described by Shleifer and Vishny ( 1994 ), which includes policy support stemming from bearing policy burdens and receiving special governmental protection. Additionally, their influence extends into political power, manifesting as implicit exchanges of interests with financial institutions in investment and financing activities. Consequently, in SOEs, controlling shareholders typically enjoy a more stable position and encounter fewer threats to control. As such, we examine whether the entry mode, change of controller’s shareholdings, relative power and business ties affect newly-entered NCLSs’ activism differently depending on the property nature of firm. The property nature is a dummy variable, which equals one if the ultimate controller of the firm is a state-owned enterprise, government agency, public institution, central authority, or local authority, and zero otherwise. Table 7 reports the results, with SOEs accounting for 27.75% of listed firms with newly-entered NCLSs. Panel A shows that direct secondary market purchases significantly hinder NCLSs’ activism in non-SOEs but not in SOEs. This may be because non-SOEs perceive such entries as control threats and adopt defensive measures, whereas SOEs, with rigid state-backed control, are less likely to treat new entrants as serious challengers. Similarly, Panel B finds that increases in controlling shareholders’ stakes impede activism in non-SOEs but not in SOEs, as non-SOE controllers are more vigilant in protecting control, while SOEs rely on entrenched state control to deter challenges. Finally, Panels C and D indicate that higher relative power and business ties promote activism by newly-entered NCLSs in both SOEs and non-SOEs. 4.5.2. Corporate culture and NCLSs’ activism. Culture, as an informal institution, significantly influences corporate valuation and actions (Graham et al., 2022 ). Chatman and O’Reilly ( 2016 ) argue that culture plays a pivotal role in shaping members' focus, guiding their attitudes, and influencing behaviors. Building on this theoretical foundation, we propose that a collaborative corporate culture can impact the ability of NCLSs to engage in activism. To operationalize the measurement of collaborative culture, we first identify and quantify the keywords related to collaborative corporate culture, such as sharing, collaboration, coordination, communication, and alliance in firms’ annual reports. We then calculate the proportion of these keywords relative to the total word count in each report. The data for this analysis are sourced from the CNRDS database. To further explore the relationship between corporate culture and shareholder activism, we divide the sample into two groups based on the annual median level of collaborative culture. Subsequently, we conduct subgroup analyses to examine the differential impact of corporate culture on shareholder activism initiated by newly-entered NCLSs across these groups. The results of these analyses are presented in Table 8 . Panels A and B show that the inhibitory effects of direct secondary market acquisitions and increased controller shareholdings on NCLSs’ activism are significant only in firms with low collaborative culture, but attenuated in those with high collaborative culture. This divergence likely reflects the role of collaborative norms in shaping governance dynamics. In high collaboration environments, institutionalized open communication channels and mutual trust reduce the perceived adversarial stakes of activism, fostering cooperative resolutions to conflicts. Simultaneously, collaborative cultures may incentivize controlling shareholders to view newcomers’ participation as value-enhancing, rather than a challenge to authority. Panels C and D further demonstrate that higher relative power and business ties are consistently associated with greater NCLSs’ activism across both subsamples. 4.5.3. Marketization and NCLSs’ activism. Institutional theory posits that institutions, as elements of the environment, provide regulatory, normative and cognitive structures and activities that offer stability and meaning to social behavior. Moreover, institutions impose constraints on organizations, compelling those within the same institutional domain to conform to similar external institutional factors and thus exhibit convergent behaviors. Corporate governance bodies typically seek advantages while adapting to their environment, and the effectiveness of shareholder activism is, to some extent, contingent upon the institutional environment in which a company operates. Therefore, understanding the impact of institutional environment on the ability of shareholders to engage in activism is crucial. With the advancement of marketization reforms, China’s central government has gradually decentralized authority to local governments, which in turn delegated power to enterprises. This process facilitated the rise of multiple large shareholders and enabled new large shareholders to engage in activism. Yet, because of differences in history, geography, transportation, and policy, the degree of marketization varies considerably across regions. Following Wang et al. (2021), we divide the sample into two groups based on the median of marketization index 1 by year and conduct subgroup analyses. Table 9 reports the results. Panels A and B show that in highly marketized regions, NCLSs entering through direct purchases in the secondary market or facing increases in controllers’ shareholdings encounter greater obstacles to appoint directors, while in less marketized regions these effects are not significant. This disparity may be linked to the fact that highly marketized regions tend to have more active control markets, where controlling shareholders perceive greater threats to their dominance and respond with stronger defensive actions. Panel C indicates that greater relative power facilitates NCLSs’ activism across both subgroups. Panel D further shows that business ties promote board representation only in highly marketized regions, where competitive pressures encourage controllers to collaborate with NCLSs who bring business synergies. 4.5.4. Value effect To further assess the consequences of NCLSs’ activism, we examine its impact on firm value. Specifically, we use the change in Tobin’s Q as the dependent variable to capture value effects and include a comprehensive set of controls, including Size , Lev , ROA , Growth , Capital , Top , SOE , Board , Dual . We further include Intangible (the ratio of intangible assets to total assets), as a firm’s investment in intangible assets directly affects its value. Additionally, we add two NCLS-related variables: If_Institution (a dummy variable equals one if the NCLS is an institutional investor) and If_Foreign (a dummy variable equals one if the NCLS is a foreign investor), to control for the characteristics of the new entrants themselves. The results are shown in Table 10 . The regression results show that, after adding these control variables, the coefficient on board representation by NCLSs is significantly positive, indicating that their activism through director appointments is associated with firm value enhancement. These findings suggest that director appointments not only provide NCLSs with a viable mechanism to translate motivation into governance influence, but also yield tangible benefits for firm performance. This evidence reinforces the argument that, in a concentrated ownership such as China’s, shareholder activism does not necessarily manifest through confrontational mechanisms, but can operate through collaborative and embedded forms of governance that align with both institutional conditions and cultural preferences. 4.6. Robustness checks 4.6.1. Propensity score matching To mitigate the potential impact of NCLSs selectively entering companies where they can appoint directors, we employ the k nearest neighbour method with calliper widths of 0.05 and set k = 2 to construct a PSM sample. It matches companies that have NCLSs appointing directors with those of similar size, profitability, and board size, but where NCLSs do not appoint directors. The results are reported in Table 11 , and the main conclusions of the study remain unchanged. 4.6.2. Alternative measurements of shareholder activism. To further analyze shareholder activism, we substitute the dependent variable in our analysis. We employ the proportion of directors appointed by newly-entered NCLSs to non-independent directors ( Rate_NonIndBoard ) as a proxy for shareholder activism. The experimental results, as shown in Panel A of Table 12 , indicate significant negative coefficients for Direct and Change , and positive coefficients for Relative and Tie , consistent with prior findings. Additionally, as the shareholders’ meeting is the highest decision-making body of a company where shareholders can exercise their voting rights to influence corporate decisions, we also consider participation in shareholder meetings of NCLSs ( Participant ) as another proxy for shareholder activism. Yet, due to an incomplete disclosure about attendance at these meetings, we first estimate the number of large shareholders participating in the shareholders’ meeting based on the disclosed total number of participants and the number of minority shareholders. If this estimated number for large shareholders is one or less, we infer non-participation in the meeting for NCLSs. For samples without disclosure of the number of minority shareholders participating in shareholders’ meeting, we analyze the shareholdings of the top two largest shareholders relative to the total shares presenting at the meeting and divide them into two groups based on the sample mean of 104.5%. If the shareholdings exceed this mean, it is inferred that the newly-entered NCLSs probably do not attend the meeting. We apply a logistic regression model to the binary variable Participant , and the results are displayed in Panel B of Table 12 . The empirical results confirm the robustness of our conclusions. 4.6.3. Confounding factors To mitigate the risk of confounding factors from common shocks at the region level affecting the appointment of directors by NCLSs, we incorporate province fixed effects in our analysis. The results are reported in Panel A of Table 13 . Additionally, to account for potential omitted variable bias related to the type of newly-entered NCLSs, we include fixed effects for shareholder types, categorized as individuals, institutional investors, other legal entities (excluding institutional investors), and others (such as asset management plans). The results for this analysis are reported in Panel B of Table 13 . Our main conclusions remain consistent. 4.6.4. Other robustness checks We introduce a dummy variable, i.e., Increase , to examine the impact of the change of controller’s shareholdings on shareholder activism. This variable is set to one if there is no decrease in the holdings of the dominant owner compared to the previous year when the NCLSs enter the company, and zero otherwise. The empirical results (not reported) show that the coefficient of Increase is significantly negative, demonstrating that when the controllers increase shareholdings, it becomes more challenging for newly-entered NCLSs to appoint directors to implement shareholder activism. Then, to examine the robustness of the effect of relative power on shareholder activism by newly-entered NCLSs, we employ the rank of their shareholding proportion among the top ten largest shareholders ( Rank ) as an alternative variable for relative power. The findings (not reported) suggest that a lower ranking is positively correlated with an increased constraints in appointing directors, confirming that a relatively weaker power hinders the effectiveness of NCLSs in executing shareholder activism. Gillan and Starks ( 2000 ), who analyze 2,042 corporate governance proposals from 1987 to 1994, find that institutional investors or coordinated groups received more support for shareholder activism compared to individual investors. Considering that the identity of shareholders may significantly influence their ability to engage in shareholder activism, we exclude samples where the newly-entered NCLSs are individual investors. Our findings (not reported) remain robust among newly-entered non-individual NCLSs. Acknowledging the potential impact of CEO power on director appointments (Arthur, 2001 ), we additionally include CEO tenure ( Tenure ) as a control variable. CEO tenure is defined as the natural logarithm of the total number of months from the CEO’s start date to the end of the year when NCLSs enter, plus one. According to Tien, Chen, and Chuang ( 2013 ), longer CEO tenures is positively correlated with greater CEO power over company. Our main regression results remain robust in this additional test (not reported). 5. Conclusions The study examines the factors influencing shareholder activism by newly-entered NCLSs through the appointment of directors, focusing on 527 firms from 2006 to 2022. These companies form an ownership structure with multiple large shareholders, with the newly-entered privately controlled NCLSs, resulting in a total of 926 shareholder-year observations. Findings reveal that direct secondary market purchases and increased controlling shareholder holdings constrain NCLSs’ activism, while greater relative power and business ties facilitate governance engagement, moderated by internal and external institutional factors such as property nature, corporate culture, and marketization levels. These results, shaped by China’s concentrated ownership, mixed-ownership reforms, and weak shareholder protections, underscore the distinct power dynamics between NCLSs and controlling shareholders. In conclusion, this study deepens the understanding of shareholder activism in concentrated ownership contexts by illuminating how interactions between NCLSs and controlling shareholders shape the former’s activism. It underscores that activism in China operates through culturally resonant and institutionally feasible pathways such as board representation. By highlighting these dynamics, the study contributes to governance theory, enriches comparative insights into activism across markets, and offers practical implications for building more effective and sustainable governance structure in emerging economies. Declarations Author Contribution Yujia Yin: Conceptualization, Writing-original draft, Writing-review & editing, Methodology, Formal analysis. Kai Wang: Methodology, Data curation, Writing-review & editing. Lihong Wang: Funding acquisition, Conceptualization, Writing-review & editing, Project administration. 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Pac-Basin Finance J 93:102902. https://doi.org/10.1016/j.pacfin.2025.102902 Zhang R, Lin Y, Kuang Y (2022) Will the governance of non-state shareholders inhibit corporate social responsibility performance? evidence from the mixed-ownership reform of China’s state-owned enterprises. Sustainability 14:527. https://doi.org/10.3390/su14010527 Footnotes Chinese marketization index measures marketization based on factors such as government-market relations, the growth of the non-state-owned economy, the maturity of product and factor markets, and the evolution of market intermediaries and the legal framework. Additional Declarations No competing interests reported. Supplementary Files APPENDIX.docx TABLE1to13.docx Cite Share Download PDF Status: Posted Version 1 posted You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. 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10:47:49","extension":"pdf","order_by":0,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":883226,"visible":true,"origin":"","legend":"","description":"","filename":"manuscript.pdf","url":"https://assets-eu.researchsquare.com/files/rs-8032944/v1/89cb981f-2543-4e46-ad11-ab2fd04e97e9.pdf"},{"id":100372939,"identity":"d2868651-9183-4e9c-a894-bbb5d22a7217","added_by":"auto","created_at":"2026-01-16 08:13:25","extension":"docx","order_by":1,"title":"","display":"","copyAsset":false,"role":"supplement","size":15735,"visible":true,"origin":"","legend":"","description":"","filename":"APPENDIX.docx","url":"https://assets-eu.researchsquare.com/files/rs-8032944/v1/f0b01bd6bcac7653fdd324ca.docx"},{"id":100269996,"identity":"2c5a34a7-3b9a-4079-8d5d-9cbab03ef68e","added_by":"auto","created_at":"2026-01-14 19:40:17","extension":"docx","order_by":2,"title":"","display":"","copyAsset":false,"role":"supplement","size":63976,"visible":true,"origin":"","legend":"","description":"","filename":"TABLE1to13.docx","url":"https://assets-eu.researchsquare.com/files/rs-8032944/v1/3fe73de5abdacdca71ba744f.docx"}],"financialInterests":"No competing interests reported.","formattedTitle":"\u003cp\u003eMotivation versus Action: Shareholder activism by non-controlling shareholders in China\u003c/p\u003e","fulltext":[{"header":"1. Introduction","content":"\u003cp\u003eSince the 1980s, there has been a notable uptick in shareholder activism within developed countries, wherein investors are increasingly engaging in corporate governance rather than merely selling their shares. Some researchers describe shareholder activism as investors actively monitoring the management (Blair, \u003cspan citationid=\"CR6\" class=\"CitationRef\"\u003e1995\u003c/span\u003e; Gillan and Starks, \u003cspan citationid=\"CR30\" class=\"CitationRef\"\u003e2000\u003c/span\u003e). Goranova and Ryan (\u003cspan citationid=\"CR31\" class=\"CitationRef\"\u003e2014\u003c/span\u003e) emphasize that activists\u0026rsquo; aim to influence management rather than take over the company themselves and argue that shareholder activism has evolved into a dynamic institutional force not only in corporate governance but also in social, political, and environmental spheres. Many studies have explored the factors driving the rise of shareholder activism, primarily focusing on firm-level drivers, such as poor performance (Thomas and Cotter, \u003cspan citationid=\"CR52\" class=\"CitationRef\"\u003e2007\u003c/span\u003e; Greenwood and Schor, \u003cspan citationid=\"CR33\" class=\"CitationRef\"\u003e2009\u003c/span\u003e; Boyson and Mooradian, 2011), high leverage (Renneboog and Szilagyi, \u003cspan citationid=\"CR45\" class=\"CitationRef\"\u003e2011\u003c/span\u003e), large firm size (Song and Szewczyk, \u003cspan citationid=\"CR50\" class=\"CitationRef\"\u003e2003\u003c/span\u003e; Cai and Walkling, \u003cspan citationid=\"CR10\" class=\"CitationRef\"\u003e2011\u003c/span\u003e) and low insider ownership (Carleton et al., \u003cspan citationid=\"CR12\" class=\"CitationRef\"\u003e1998\u003c/span\u003e; Ertimur et al., \u003cspan citationid=\"CR26\" class=\"CitationRef\"\u003e2010\u003c/span\u003e). In this paper, however, we focus on when new shareholders are willing to engage in shareholder activism, whether and how their ability to do so is influenced, especially by the dominant owner.\u003c/p\u003e \u003cp\u003eWhile shareholder proposals, dissent voting, and ownership thresholds are the most frequently examined measures of activism globally (Aggarwal et al., \u003cspan citationid=\"CR1\" class=\"CitationRef\"\u003e2015\u003c/span\u003e; Baloria et al., \u003cspan citationid=\"CR3\" class=\"CitationRef\"\u003e2019\u003c/span\u003e; Bebchuk et al., \u003cspan citationid=\"CR4\" class=\"CitationRef\"\u003e2020\u003c/span\u003e; Brochet et al., \u003cspan citationid=\"CR8\" class=\"CitationRef\"\u003e2021\u003c/span\u003e), director appointments also represent an important channel of influence, though they have attracted relatively limited scholarly attention given the high shareholding thresholds typically required for board nominations. Against the backdrop of China\u0026rsquo;s concentrated ownership structure, however, securing board seats becomes a pivotal mechanism through which non-controlling large shareholders (NCLSs) can implement activism effectively under the influence of dominant owners. In such settings, where decision-making power is largely concentrated in the hands of controllers, formal representation on the board provides NCLSs with a direct and institutionalized channel to participate in firms\u0026rsquo; operational and governance decisions (Dou et al., \u003cspan citationid=\"CR22\" class=\"CitationRef\"\u003e2016\u003c/span\u003e; Jiang and Liu, \u003cspan citationid=\"CR36\" class=\"CitationRef\"\u003e2021\u003c/span\u003e; Swanson et al., \u003cspan citationid=\"CR51\" class=\"CitationRef\"\u003e2022\u003c/span\u003e). Accordingly, examining NCLSs\u0026rsquo; activism through board representation is essential for understanding the power dynamics and strategic interactions among large shareholders in concentrated ownership structures.\u003c/p\u003e \u003cp\u003eNotably, this pattern reflects not only structural realities of concentrated ownership but also deep-rooted cultural orientations. Traditional Chinese culture values \u003cem\u003ehe\u003c/em\u003e (harmony) over confrontation, emphasizing that different elements should work together and support each other as parts of a unified whole (Cheng, \u003cspan citationid=\"CR17\" class=\"CitationRef\"\u003e2009\u003c/span\u003e; Nelson, \u003cspan citationid=\"CR43\" class=\"CitationRef\"\u003e2011\u003c/span\u003e; Yuan and Jiang, \u003cspan citationid=\"CR58\" class=\"CitationRef\"\u003e2025\u003c/span\u003e). It is often claimed that \u003cem\u003ethe Yijing way of thinking characterizes the basic mode of Chinese philosophical thinking\u003c/em\u003e (Cheng, \u003cspan citationid=\"CR17\" class=\"CitationRef\"\u003e2009\u003c/span\u003e). In the \u003cem\u003eYijing\u003c/em\u003e, the \u0026ldquo;Litigation\u0026rdquo; Hexagram (\u003cem\u003eSong Gua\u003c/em\u003e) advises that disputes, if anticipated and addressed early, can be dissolved through negotiation and adjustment rather than escalated into open confrontation in the shareholder meeting. Consistent with this cultural preference for harmony and preemptive resolution, NCLSs in China tend to pursue activism through board representation as an embedded and institutionally feasible channel of influence. By contrast, shareholder activism in western markets typically begins with more visible and public interventions, such as proposals, dissent voting, or litigation, before escalating to proxy contests.\u003c/p\u003e \u003cp\u003eIn fact, whether newly-entered large shareholder can conduct shareholder activism through board appointment depends not only on their motivation to intervene but also on their ability to act. When shareholders accumulate sufficient stakes to become large shareholders, they have the motivation and the potential ability to engage in shareholder activism compared to minority shareholders, who are often prone to free-riding. Prior studies suggest that activism is the most effective when ownership blocks are formed (Denes et al., 2017). Yet, the ability of large shareholders to translate motivation into action is not guaranteed. This challenge is particularly prominent in concentrated ownership structure: newly-entered NCLSs, despite their inclination to monitor incumbents, often face constraints imposed by controlling shareholders whose interests may diverge from NCLSs\u0026rsquo; (Song et al., \u003cspan citationid=\"CR49\" class=\"CitationRef\"\u003e2020\u003c/span\u003e). These inherent conflicts raise critical questions: Can NCLSs effectively appoint directors to secure governance influence in concentrated ownership structures? And under what conditions are their activism efforts more likely to succeed? Addressing the factors shaping NCLSs\u0026rsquo; ability to conduct activism is therefore crucial. It not only advances theories of shareholder activism by unpacking the \u0026ldquo;motivation-action gap\u0026rdquo; in interactions between controlling and non-controlling shareholders, but also provides insight into the conditions that foster more balanced and collaborative governance in concentrated ownership settings.\u003c/p\u003e \u003cp\u003eChina offers a distinctive setting for studying the factors influencing shareholder activism by NCLSs for three reasons. First, its concentrated ownership structure, coupled with ongoing mixed-ownership reform, provides a unique institutional environment for examining how shareholder interactions shape activism. Second, in Chinese capital market where minority shareholders typically lack sufficient protection and voice, NCLSs serve as a critical governance force by mitigating agency costs and information asymmetry (Jiang et al., \u003cspan citationid=\"CR35\" class=\"CitationRef\"\u003e2018\u003c/span\u003e; Chen et al., \u003cspan citationid=\"CR15\" class=\"CitationRef\"\u003e2019\u003c/span\u003e; Rossetto et al., 2023), making their activism a key lever for improving corporate governance. Third, China\u0026rsquo;s traditional culture, which values harmony and non-confrontational solutions, makes director appointments a culturally resonant and institutionally feasible channel for NCLSs to exercise influence. Within this context, we focus specifically on the activism of privately controlled NCLSs. On the one hand, the mixed-ownership reform has significantly spurred non-state capital investment (Chen et al., \u003cspan citationid=\"CR16\" class=\"CitationRef\"\u003e2023\u003c/span\u003e), expanding privately controlled NCLSs\u0026rsquo; presence in both privately controlled firms and state-owned enterprises (SOEs) and motivating them to pursue board representation as a means of governance influence. On the other hand, unlike state-owned investors, who are constrained by policy mandates and often lack incentives due to the \u0026ldquo;absent owner\u0026rdquo; problem, privately controlled NCLSs in China exhibit stronger motivations for activism once they accumulate significant shareholdings, similar to active institutional investors in Western economies. However, their efforts are frequently curtailed by dominant owners and weak investor protections. This tension between strong motivation and structural constraints underscores the urgency of studying when and how privately controlled NCLSs can effectively translate their activism intentions into action.\u003c/p\u003e \u003cp\u003eTo isolate the activism of privately controlled NCLSs and minimize distortions from state-driven policies, this study examines a sample of non-financial listed companies on the Shanghai and Shenzhen Stock Exchanges from 2006 to 2022, where the entry of privately controlled NCLSs has led to ownership structures with multiple large shareholders. Drawing on Goranova and Ryan (\u003cspan citationid=\"CR31\" class=\"CitationRef\"\u003e2014\u003c/span\u003e), we define shareholder activism as the active involvement of non-controlling shareholders in corporate governance, with the aim of influencing corporate decisions to achieve their own interests. More exactly, to investigate the factors shaping NCLSs\u0026rsquo; activism, this study develops a sequential framework. We begin with the entry mode, which establishes the initial dynamics of interaction. In China, where shareholder protection is weak and incumbents are highly sensitive to control threats, direct purchases in the secondary markets by NCLSs are likely to trigger defensive concerns, prompting controlling shareholders to adopt exclusionary tactics that limit activism. We then examine the defensive responses of controlling shareholders, focusing on their shareholding increases as a means of consolidating control and marginalizing new entrants. Finally, we identify conditions for NCLSs\u0026rsquo; activism to become feasible. Drawing on resource dependence theory, we argue that higher relative power and business ties can enhance the bargaining position of NCLSs, enabling them to negotiate more effectively with dominant owners and exert an influence through board appointments. In this way, direct secondary market entry and controlling shareholders\u0026rsquo; defense act as obstacles, while relative power and business ties provide leverage, together shaping whether NCLSs\u0026rsquo; motivation can be converted into board-level influence.\u003c/p\u003e \u003cp\u003eOur empirical results indicate that NCLSs entering through direct purchases in the secondary market face greater challenges in exercising activism via director appointments. Similarly, when controlling shareholders increase their stakes, the likelihood that NCLSs can secure board seats is substantially reduced. By contrast, NCLSs with a greater relative power and stronger business ties are more capable of engaging in activism. Additional analyses reveal that the constraining effects of direct purchases and controlling shareholders\u0026rsquo; increased holdings are evident under conditions of non-state ownership, low collaboration culture, and high marketization. Moreover, we find that board representation as a form of activism by NCLSs can significantly enhance firm value.\u003c/p\u003e \u003cp\u003eArguably, this study makes three key contributions. First, we deepen the understanding of the determinants of NCLSs\u0026rsquo; activism and the institutional contingencies that shape it. Unlike prior research, which emphasizes firm-level, activist-level, or regulatory triggers of activism (Ryan and Schneider, \u003cspan citationid=\"CR46\" class=\"CitationRef\"\u003e2002\u003c/span\u003e; Judge et al., \u003cspan citationid=\"CR38\" class=\"CitationRef\"\u003e2010\u003c/span\u003e; Maffett et al., \u003cspan citationid=\"CR42\" class=\"CitationRef\"\u003e2022\u003c/span\u003e), our findings reveal that outcomes are conditioned by the interaction between NCLSs and controlling shareholders. Specifically, we show that factors such as NCLSs\u0026rsquo; entry mode, changes in controlling shareholders\u0026rsquo; shareholdings, relative power and existing business ties directly influence whether activism motivations translate into action. In addition, ownership type, collaborative norms, and the degree of marketization further moderate these dynamics, offering a more nuanced view of the antecedents of activism in concentrated ownership structures.\u003c/p\u003e \u003cp\u003eSecond, we conceptualize shareholder activism as a negotiated governance mechanism among multiple large shareholders with particular attention to director appointments, a critical yet understudied channel. While director appointments are widely recognized as a key way for shareholders to influence corporate decisions, most existing empirical studies prioritize more public, adversarial forms of activism, such as shareholder proposals, dissent, or litigation (Ertimur et al., \u003cspan citationid=\"CR25\" class=\"CitationRef\"\u003e2011\u003c/span\u003e; Cvijanovic et al., \u003cspan citationid=\"CR21\" class=\"CitationRef\"\u003e2016\u003c/span\u003e; Gillan et al., \u003cspan citationid=\"CR29\" class=\"CitationRef\"\u003e2023\u003c/span\u003e; Xie et al. \u003cspan citationid=\"CR57\" class=\"CitationRef\"\u003e2024\u003c/span\u003e). In contrast, our study investigates NCLSs\u0026rsquo; activism through director appointments, and based on a large sample, unpacks the power pathways and communication channels between NCLSs and dominant controlling shareholders. By analyzing the bargaining and communication channels between NCLSs and dominant controlling shareholders, this study sheds light on how NCLSs can exert meaningful governance influence and highlights collaboration, rather than confrontation, as a distinctive mode of activism.\u003c/p\u003e \u003cp\u003eFinally, we extend the shareholder activism literature from dispersed to concentrated ownership structures. Much of the prior literature has focused on institutional investor activism in Western markets with dispersed ownership structures (Crespi and Renneboog, \u003cspan citationid=\"CR20\" class=\"CitationRef\"\u003e2010\u003c/span\u003e; Bebchuk et al., \u003cspan citationid=\"CR5\" class=\"CitationRef\"\u003e2015\u003c/span\u003e; Cvijanovic et al., \u003cspan citationid=\"CR21\" class=\"CitationRef\"\u003e2016\u003c/span\u003e; Cai et al., \u003cspan citationid=\"CR9\" class=\"CitationRef\"\u003e2025\u003c/span\u003e), leaving the dynamics of activism under concentrated ownership largely unexplored. Our analysis of the Chinese context addresses this gap by demonstrating how dominant shareholders and weak investor protections uniquely shape NCLSs\u0026rsquo; activism, constraining direct challenges while simultaneously amplifying the relevance of relational and collaborative tactics such as director appointments. This extension fills an important gap in the literature and provides a contextually grounded analytical lens for understanding shareholder activism in emerging markets, contributing to the growing discourse on governance in concentrated ownership environments (Katelouzou et al., \u003cspan citationid=\"CR39\" class=\"CitationRef\"\u003e2024\u003c/span\u003e).\u003c/p\u003e \u003cp\u003eThe rest of paper is organized as follows: The second part includes theoretical analysis and hypotheses. The third part presents the research design, providing a detailed description of the sample selection, data sources, variable measurement, and model setting, along with descriptive statistical analysis. The fourth section reports the empirical tests and results of the hypotheses, incorporating includes additional analyses and robustness checks. Finally, the paper concludes with a comprehensive summary.\u003c/p\u003e"},{"header":"2. Development of hypotheses","content":"\u003cdiv id=\"Sec3\" class=\"Section2\"\u003e \u003ch2\u003e2.1. Entry mode and NCLSs\u0026rsquo; activism\u003c/h2\u003e \u003cp\u003eThe NCLSs\u0026rsquo; activism can be influenced by their modes of entry into a company. Different entry modes can signal distinct relations between newly-entered NCLSs and controlling shareholders, which in turn influence the newcomers\u0026rsquo; capacity to enact activism. Investors in China typically enter listed companies through direct purchases in the secondary market, negotiated transfers, or non-public issuance of shares. Compared to other entry modes, direct secondary market purchases may pose more obstacles for NCLSs in implementing shareholder activism.\u003c/p\u003e \u003cp\u003eOn the one hand, when NCLSs enter listed companies by directly purchasing shares in the secondary market, the absence of negotiation processes may make it harder for them to gain support from controlling shareholders and managers for shareholder activism. This direct entry mode makes it challenging for the controlling shareholders to accurately assess the newcomers\u0026rsquo; intentions and impact, potentially leading to restrictions on their activism. In contrast, entering through negotiations enables NCLSs to engage with the entrenched incumbents on issues such as board structure and decision-making authority, thereby reducing information asymmetry and fostering a more cooperative environment for activism.\u003c/p\u003e \u003cp\u003eOn the other hand, when an investor purchases a substantial number of shares in the secondary market to become a large shareholder, it may be perceived as a potential threat to the company\u0026rsquo;s control structure. In other word, the entry of NCLSs through direct purchases of significant shares can pose challenges for controlling shareholder in safeguarding his/her interests. This is because active NCLSs are often more inclined to seek greater influence or collaborate with external parties to challenge the controlling shareholder\u0026rsquo;s dominance over the company. Corum and Levit (\u003cspan citationid=\"CR19\" class=\"CitationRef\"\u003e2019\u003c/span\u003e), for example, study Subgame Perfect Equilibria in pure strategies and solve the game backward, prove that activist investors possess an inherent advantage compared to bidders in pressuring entrenched incumbents to sell. Therefore, when controlling shareholders perceive a potential threat to their control due to NCLSs purchasing shares directly in the secondary market and being motivated to engage in shareholder activism, they are more likely to restrict these newcomers from obtaining board seats and exerting influence through activism. In summary, the lack of negotiation process and potential threat to control resulting from directly purchasing shares in the secondary market restrict the ability of NCLSs to achieve shareholder activism. As such, we propose the following hypothesis:\u003c/p\u003e \u003cp\u003e \u003cstrong\u003eHypothesis 1\u003c/strong\u003e \u003cp\u003e \u003cem\u003eWhen NCLSs enter the company through purchasing directly in the secondary market, they are less likely to realize shareholder activism by appointing directors.\u003c/em\u003e \u003c/p\u003e \u003c/p\u003e \u003c/div\u003e \u003cdiv id=\"Sec4\" class=\"Section2\"\u003e \u003ch2\u003e2.2. Change of controller\u0026rsquo;s shareholdings and NCLSs\u0026rsquo; activism\u003c/h2\u003e \u003cp\u003eA substantial body of studies within the Chinese context suggest that the \u0026ldquo;profit-seeking nature\u0026rdquo; of non-state shareholders makes them have a strong incentive to monitor the management and operations of listed companies, thereby mitigating agency costs by constraining insider opportunism (Zhang et al., \u003cspan citationid=\"CR59\" class=\"CitationRef\"\u003e2022\u003c/span\u003e; Wang et al., \u003cspan citationid=\"CR56\" class=\"CitationRef\"\u003e2023b\u003c/span\u003e). Shareholder activism by NCLSs can restrict the ability of controlling shareholders to derive private benefits of control. Therefore, the controlling shareholders who seek to reinforce their control may take more stringent actions to limit shareholder activism by NCLSs.\u003c/p\u003e \u003cp\u003eFirst, when controlling shareholders increase their shareholdings, their intention to strengthen control may lead them to adopt a more defensive stance toward the activism of newly-entered NCLSs. By reinforcing their control, controlling shareholders can secure private benefits (Johnson et al., \u003cspan citationid=\"CR37\" class=\"CitationRef\"\u003e2000\u003c/span\u003e). For instance, Dyck and Zingales (\u003cspan citationid=\"CR23\" class=\"CitationRef\"\u003e2004\u003c/span\u003e) argue that, beyond the \u0026ldquo;psychic\u0026rdquo; value and perquisites associated with control, controlling shareholders may exploit their informational advantage to pursue personal investment opportunities, capturing private benefits of control at the expense of other shareholders (see also Heugens et al., 2009). The activism of NCLSs, particularly through the appointment of directors, can threaten this ability by increasing oversight of the controlling shareholders\u0026rsquo; actions and limiting their capacity to extract private benefits (Kesner and Johnson, \u003cspan citationid=\"CR40\" class=\"CitationRef\"\u003e1990\u003c/span\u003e; Iwasaki, \u003cspan citationid=\"CR34\" class=\"CitationRef\"\u003e2008\u003c/span\u003e). Thus, controlling shareholders, particularly when they increase their holdings, are incentivized to block NCLSs\u0026rsquo; efforts to gain board representation, thereby safeguarding their control and the associated private benefits.\u003c/p\u003e \u003cp\u003eSecond, controlling shareholders who increase their holdings also gain more power to effectively block NCLSs\u0026rsquo; activism. As Emerson (\u003cspan citationid=\"CR24\" class=\"CitationRef\"\u003e1962\u003c/span\u003e) posits, power is rooted in the dependency of others. When controlling shareholders demonstrate confidence in the company\u0026rsquo;s future by increasing their investment, they reduce their reliance on the resources or participation of NCLSs. This diminished dependency weakens the bargaining power of NCLSs, making it more difficult for them to negotiate for board seats to influence decision-making. As a result, controlling shareholders are in a stronger position to resist any activist efforts by NCLSs, further consolidating their control over the company. Based on the above analysis, we propose the following hypothesis:\u003c/p\u003e \u003cp\u003e \u003cstrong\u003eHypothesis 2\u003c/strong\u003e \u003cp\u003e \u003cem\u003eWhen the controlling shareholder increases his/her stake, NCLSs are less likely to realize shareholder activism by appointing directors.\u003c/em\u003e \u003c/p\u003e \u003c/p\u003e \u003c/div\u003e \u003cdiv id=\"Sec5\" class=\"Section2\"\u003e \u003ch2\u003e2.3. Relative power and NCLSs\u0026rsquo; activism\u003c/h2\u003e \u003cp\u003eNumerous studies on shareholder activism have shown a positive relation between the rise of institutional investor activism and their shareholdings (Smith, \u003cspan citationid=\"CR48\" class=\"CitationRef\"\u003e1996\u003c/span\u003e; Gillan and Starks, \u003cspan citationid=\"CR30\" class=\"CitationRef\"\u003e2000\u003c/span\u003e). However, in companies with multiple large shareholders, the influence of a newly-entered large shareholder is determined not only by their own shareholdings but also by the relative power dynamics between them and the controlling shareholder. As Emerson (\u003cspan citationid=\"CR24\" class=\"CitationRef\"\u003e1962\u003c/span\u003e) argues, power is not an inherent attribute of an actor but a property of social relations. In line with this, for NCLSs to exert significant influence, a relatively large ownership percentage is crucial. For instance, Cao et al. (\u003cspan citationid=\"CR11\" class=\"CitationRef\"\u003e2019\u003c/span\u003e), using a sample of Chinese listed firms from 2008 to 2015, find that NCLSs can effectively mitigate the entrenchment effects of controlling shareholders only when their power is more balanced with that of the controller. Additionally, Wang et al. (\u003cspan citationid=\"CR54\" class=\"CitationRef\"\u003e2023a\u003c/span\u003e) show that a smaller shareholding gap between the second-largest and controlling shareholder can diminish the negative impact of the latter\u0026rsquo;s shareholding ratio on cash dividends by using the data of China\u0026rsquo;s A-share listed companies from 2007 to 2017.\u003c/p\u003e \u003cp\u003eIn this study, when NCLSs possess a higher shareholding ratio relative to controlling shareholders, they are better equipped to counterbalance the controlling shareholder\u0026rsquo;s influence on corporate governance and strategy. Given the pivotal role of boards in corporate governance and internal control (Gillan, \u003cspan citationid=\"CR28\" class=\"CitationRef\"\u003e2006\u003c/span\u003e), NCLSs with higher relative power are more capable of exerting shareholder activism through director appointments. This not only signals their commitment to governance but also enhances their ability to impact crucial corporate decisions. Conversely, if NCLSs possess relative less power, their ability to secure board positions and enact activism may be significantly hindered, regardless of their motivation. Based on the above analysis, we thereby propose the following hypothesis:\u003c/p\u003e \u003cp\u003e \u003cstrong\u003eHypothesis 3\u003c/strong\u003e \u003cp\u003e \u003cem\u003eWhen the relative power of NCLSs to that of the controlling shareholder is higher, they are more likely to realize shareholder activism by appointing directors.\u003c/em\u003e \u003c/p\u003e \u003c/p\u003e \u003c/div\u003e \u003cdiv id=\"Sec6\" class=\"Section2\"\u003e \u003ch2\u003e2.4. Business ties and NCLSs\u0026rsquo; activism\u003c/h2\u003e \u003cp\u003eAccording to the resource dependence theory, newly-entered NCLSs with business ties to a listed company or those embedded within the company\u0026rsquo;s supply chain possess valuable resources, such as supply chain integration or market access. These resources significantly enhance their bargaining power in corporate governance. As a result, NCLSs are better positioned to negotiate for board seats, thereby gaining greater influence over the company\u0026rsquo;s strategy and decision-making processes. Securing board representation allows these large shareholders to align strategic objectives, promote resource complementarity, and facilitate the flow of critical information. Ultimately, such involvement fosters long-term strategic collaboration, maximizing mutual benefits for both controlling shareholders and NCLSs.\u003c/p\u003e \u003cp\u003eFurthermore, the existence of business connection can enhance trust and communication between NCLSs and controlling shareholders, which is crucial for NCLSs to gain support for appointing directors to engage in shareholder activism. As noted by Cvijanovic et al. (\u003cspan citationid=\"CR21\" class=\"CitationRef\"\u003e2016\u003c/span\u003e), institutional investors with significant business ties to the firms in which they invest are more likely to foster an improved communication with management. Similarly, in the context of NCLSs in China, a potential business relationship can increase the level of trust between controlling shareholders and the newcomers, alleviating concerns about potential threats to control. This trust can encourage controlling shareholders to support the participation of NCLSs in corporate governance by allowing them to appoint directors. Based on the above analysis, we thereby propose the following hypothesis:\u003c/p\u003e \u003cp\u003e \u003cstrong\u003eHypothesis 4\u003c/strong\u003e \u003cp\u003e \u003cem\u003eWhen NCLSs have business ties with the invested firm, they are more likely to realize shareholder activism by appointing directors.\u003c/em\u003e \u003c/p\u003e \u003c/p\u003e \u003c/div\u003e"},{"header":"3. Methodology","content":"\u003cdiv id=\"Sec8\" class=\"Section2\"\u003e\n \u003cp\u003e\u003cstrong\u003e\u003cem\u003e3.1 Data and sample\u003c/em\u003e\u003c/strong\u003e\u003c/p\u003e\n \u003cp\u003eWe collect data from non-financial companies listed on the Shanghai Stock Exchange and Shenzhen Stock Exchange from 2006 to 2022. Choosing 2006 as the starting year is because, before the equity reform in 2005, approximately two-thirds of the A-shares of Chinese listed companies were non-tradeable, making it difficult for other investors to accumulate sufficient shares to exert an influence (Chen et al., 2019). Financial companies are excluded due to the unique nature of their business, with financial data, performance indicators, and operational methods differing from non-financial companies.\u003c/p\u003e\n \u003cp\u003eSubsequently, we select a subset of A-share listed companies that have newly-entered non-controlling large shareholders, ensuring that these shareholders contribute to a structure with multiple large shareholders, which is maintained for at least three years. Observations where the newly entered shareholders are state-owned entities are excluded, as our focus is specifically on privately controlled NCLSs. Specifically, privately controlled NCLSs are defined as shareholders who are not affiliated with state-owned entities, government agencies, or the public sector, but who hold a significant stake in the company without exercising controlling power. We adopt a 5% shareholding threshold to define large shareholders. This threshold accounts for the cumulative holdings of \u0026nbsp;\u0026ldquo;acting in concert\u0026rdquo; as disclosed in financial statements and is calculated based on the combined shareholdings of shareholders and their related parties (Jiang et al., 2018; Chen et al., 2019). Our determination of acting in concert is manually collected from annual reports. The final sample consists of 527 companies with 926 shareholder-year observations.\u003c/p\u003e\n \u003cp\u003eTo assess the implementation of shareholder activism by newly-entered NCLSs, we manually collect data on director appointments. First, we identify the years when NCLSs enter companies. Subsequently, we compare the board members in the current year with those in the previous year to identify new appointments. We then obtain the past employment information of directors from their profiles in annual reports to ascertain any affiliations with the new shareholders. For individual shareholders, they are assumed to be self-appointed if they serve as directors of the listed company. If the newly-entered large shareholder is a legal entity, we check for any past or present executive roles held by directors within the shareholder\u0026rsquo;s company. Our analysis reveals that in 162 instances, newly-entered NCLSs appoint directors, representing 27.5% of our total sample.\u0026nbsp;\u003c/p\u003e\n \u003cp\u003eWe identify NCLSs\u0026rsquo; entry modes from company announcements and annual reports. The operational scope for NCLSs is manually collected from Chinese National Enterprise Credit Information Publicity System (NECIPS), a government-initiated registry providing business license information, including establishment date, location, and business scope (see also Gao et al., 2023). Firm-level data are sourced from the CSMAR database, supplemented by annual reports if necessary.\u003c/p\u003e\n \u003cp\u003e\u003cstrong\u003e\u003cem\u003e3.2 Variable measurements\u003c/em\u003e\u003c/strong\u003e\u003c/p\u003e\n \u003cp\u003eTo measure shareholder activism, we use the appointment of directors as a proxy, including the variables \u003cem\u003eN_Board\u0026nbsp;\u003c/em\u003eand \u003cem\u003eRate_Board\u003c/em\u003e. The former is defined as the number of directors appointed by NCLSs in the year of entry, while the latter is defined as the proportion of such appointments relative to the total number of directors.\u003c/p\u003e\n \u003cp\u003eFor key explanatory variables, the entry mode is captured by a dummy variable \u003cem\u003eDirect\u003c/em\u003e, which equals one if the NCLSs enter through direct purchases in the secondary market. The change of the controller\u0026rsquo;s shareholding is measured by the variable\u003cem\u003e\u0026nbsp;Change\u003c/em\u003e, calculating the annual change rate in the shareholding ratio of controlling shareholder. We use the variable \u003cem\u003eRelative\u003c/em\u003e to measure relative power, which represents the proportion of shares held by the newly-entered NCLSs and their related parties relative to those held by the controlling shareholders and their related parties. Business ties are represented by a dummy variable \u003cem\u003eTie\u003c/em\u003e, which equals one if the business of NCLSs is part of the invested listed company\u0026rsquo;s supply chain, either in the upstream or downstream sectors, and zero otherwise.\u003c/p\u003e\n \u003cp\u003eRegarding control variables, we include several firm-level control variables, which are firm size (\u003cem\u003eSize\u003c/em\u003e) (= the natural logarithm of total assets), leverage (\u003cem\u003eLev\u003c/em\u003e) (= the ratio of total liabilities to total assets), return on asset (\u003cem\u003eROA\u003c/em\u003e) (=the ratio of net profit to total assets), growth rate of assets (\u003cem\u003eGrowth\u003c/em\u003e) (= the increase rate of total assets), capital expenditure (\u003cem\u003eCapital\u003c/em\u003e) (= the ratio of capital expenditure to total assets) and firm age (\u003cem\u003eAge\u003c/em\u003e) (= the natural logarithm of the number of years the firm is listed on the Chinese A-share plus one).\u003c/p\u003e\n \u003cp\u003eAdditionally, we control for several corporate governance variables, including the proportion of shares held by the controlling shareholder (\u003cem\u003eTop\u003c/em\u003e) (=the ratio of shares held by the controlling shareholders and their related parties), the size of board (\u003cem\u003eBoard\u003c/em\u003e) (= the natural logarithm of the number of board members), independent directors (\u003cem\u003eIndboard\u003c/em\u003e) (= the percentage of independent directors to the total number of board members), CEO duality (\u003cem\u003eDual\u003c/em\u003e) (= a dummy variable equals one when the chairman and CEO are the same individual, and zero otherwise), managerial shareholding (\u003cem\u003eMshare\u003c/em\u003e) (= the fraction of shares owned by the top management team divided by total shares) and institutional ownership (Institution) (= the fraction of shares owned by the \u0026nbsp;institutional investors divided by total shares).\u0026nbsp;\u003c/p\u003e\n \u003cp\u003eTo minimize the impact of outliers on the research results, all continuous variables are winsorized at the 1st and 99th percentiles. Appendix provides definitions for the main variables used in this study.\u003c/p\u003e\n \u003cp\u003e\u0026lt;Insert Appendix about here\u0026gt;\u003c/p\u003e\n \u003cp\u003e\u003cstrong\u003e\u003cem\u003e3.3 Model\u003c/em\u003e\u003c/strong\u003e\u003c/p\u003e\n \u003cp\u003eTo examine the influence of interactions between large shareholders on the activism of NCLSs, we utilize the following model (1),\u0026nbsp;\u003c/p\u003e\n\u003c/div\u003e\n\u003cdiv id=\"Sec10\" class=\"Section2\"\u003e\n \u003cdiv id=\"Equa\" class=\"Equation\"\u003e\n \u003cdiv class=\"mathdisplay\" id=\"FileID_Equa\" name=\"EquationSource\"\u003e$$\\:\\begin{array}{c}{\\text{Y}}_{i,t}\\text{=}\\text{\u0026alpha;}+\\text{\u0026beta;}{X}_{i,t}+\\eta\\text{C}\\text{o}\\text{n}\\text{t}\\text{r}\\text{o}\\text{l}\\text{s}+{\\mu\\:}_{t}+{\\omega\\:}_{j}+{\\epsilon\\:}_{i,t}\\#\\left(1\\right)\\end{array}$$\u003c/div\u003e\n \u003c/div\u003e\n \u003cp\u003e\u003cem\u003eY\u003c/em\u003e represents the dependent variables, i.e., the appointment of directors (\u003cem\u003eN_Board\u003c/em\u003e and \u003cem\u003eRate_Board\u003c/em\u003e). \u003cem\u003eX\u003c/em\u003e denotes the key explanatory variables, representing the entry mode (\u003cem\u003eDirect\u003c/em\u003e), change of controller\u0026rsquo;s shareholding (\u003cem\u003eChange\u003c/em\u003e), relative power (\u003cem\u003eRelative\u003c/em\u003e) and business ties (\u003cem\u003eTie\u003c/em\u003e). \u003cem\u003eControls\u003c/em\u003e represent the control variables, lagged by one period to address endogeneity, except for listing age (\u003cem\u003eAge\u003c/em\u003e). In addition, we control for year fixed effects (\u003cspan class=\"InlineEquation\"\u003e\u003cspan class=\"mathinline\"\u003e\\(\\:\\mu\\:\\)\u003c/span\u003e\u003c/span\u003e) and industry fixed effects (\u003cspan class=\"InlineEquation\"\u003e\u003cspan class=\"mathinline\"\u003e\\(\\:\\omega\\:\\)\u003c/span\u003e\u003c/span\u003e) based on three-digit CSRC codes. The coefficient of interest, \u003cspan class=\"InlineEquation\"\u003e\u003cspan class=\"mathinline\"\u003e\\(\\:\\beta\\:\\)\u003c/span\u003e\u003c/span\u003e, helps test our hypotheses regarding the influence of entry mode, change of controller\u0026rsquo;s shareholding, relative power, and business ties on NCLSs\u0026rsquo; activism.\u003c/p\u003e\n\u003c/div\u003e\n\u003cdiv id=\"Sec11\" class=\"Section2\"\u003e\n \u003cp\u003e\u003cstrong\u003e\u003cem\u003e3.4 Descriptive statistics and univariate analysis\u003c/em\u003e\u003c/strong\u003e\u003c/p\u003e\n \u003cp\u003eTable 1 presents descriptive statistics for the main variables. In our sample, 17.49% of NCLSs appoint at least one director, with the maximum number reaching four directors. Among those appointing directors, 84.57% appoint only one director. Across the entire sample, these appointments constitute an average of 2.4% of total board membership, peaking at 22.2%.\u0026nbsp;For explanatory variables, 13.4% of NCLSs enter through direct purchases in the secondary market. On average, the controlling shareholders and their related parties reduce their stakes by 11.3% in the sample, with some cases experiencing increases up to 8.8%. Additionally, the average shareholding of NCLSs relative to the controlling shareholder is 33.2%, and 16.0% of NCLSs have business ties with the invested firm. \u0026nbsp;The closeness of the means and medians for continuous variables suggests a reasonable distribution within the sample.\u003c/p\u003e\n \u003cp\u003eTable 2 reports the univariate analysis results, categorizing observations by entry mode, change of controller\u0026rsquo;s shareholdings, relative power and business ties. We investigate the significance of the differences across these subsamples by employing a parametric \u003cem\u003et\u003c/em\u003e test as well as a nonparametric Wilcoxon test. Specifically, in Panel A, grouped by entry mode, NCLSs enter through direct purchases in the secondary market are less likely to appoint directors for shareholder activism than others, and the differences are statistically significant, providing a preliminary support for \u003cem\u003eHypothesis 1\u003c/em\u003e. Panel B divides observations by the change of controller\u0026rsquo;s shareholdings, revealing that as the change rate of controller\u0026rsquo;s shareholdings rises, the directors appointed by NCLSs decrease. The significant differences preliminarily confirm \u003cem\u003eHypothesis 2\u003c/em\u003e. As shown in Panel C, grouped by relative power, a relative higher shareholding of newly-entered NCLSs to controllers correlates with an increase of director appointments, supporting \u003cem\u003eHypothesis 3\u003c/em\u003e. In Panel D, grouped by business ties, NCLSs who have business ties with the invested firm are more likely to appoint directors to engage in activism than others, and the differences are statistically significant, providing a support for \u003cem\u003eHypothesis 4\u003c/em\u003e.\u003c/p\u003e\n \u003cp\u003e\u0026lt;Insert Table 1-2 about here\u0026gt;\u003c/p\u003e\n\u003c/div\u003e"},{"header":"4. Results","content":"\u003cdiv id=\"Sec13\" class=\"Section2\"\u003e\n \u003ch2\u003e4.1. Entry mode and NCLSs\u0026rsquo; activism\u003c/h2\u003e\n \u003cp\u003eTable \u003cspan class=\"InternalRef\"\u003e3\u003c/span\u003e reports the impact of entry mode on the implementation of shareholder activism by newly-entered NCLSs. In Panel A and Panel B, we respectively use \u003cem\u003eN_Board\u003c/em\u003e and \u003cem\u003eRate_Board\u003c/em\u003e as the dependent variable to capture shareholder activism. More exactly, in the first column of each panel, we only include \u003cem\u003eDirect\u003c/em\u003e in the model and control for industry and year fixed effects. Then, in the second column of each panel, we add firm-level control variables. Finally, in the third column of each panel, we include governance-related control variables. Following Petersen (\u003cspan class=\"CitationRef\"\u003e2009\u003c/span\u003e), standard errors of the regression results are clustered at the firm level.\u003c/p\u003e\n \u003cp\u003eThe empirical results show that the coefficient of \u003cem\u003eDirect\u003c/em\u003e is significantly negative in all regression models. This indicates that when entering the company through purchasing directly in the secondary market, newly-entered NCLSs find it more difficult to appoint directors, providing a strong empirical support for \u003cem\u003eHypothesis\u003c/em\u003e \u003cspan class=\"InternalRef\"\u003e\u003cem\u003e1\u003c/em\u003e\u003c/span\u003e. These findings suggest that an effective communication and negotiation between newly-entered shareholders and controlling shareholders are crucial for the newcomers to secure board appointments for shareholder activism. Direct purchases in the secondary market, without prior communication, can trigger defensive actions from the controlling shareholder, as such actions may raise concerns about potential threats to control. This, in turn, creates significant obstacles for newly-entered NCLSs in gaining board representation. As such, our results suggest that pre-entry communication plays a critical role in influencing the likelihood of newcomers successfully appointing directors in shareholder activism, highlighting the importance of establishing trust and dialogue before entering the company. For the control variables, we find that the growth rate of assets, managerial shareholding and institutional ownership are statistically negatively correlated with the appointment of directors by newly-entered NCLSs.\u003c/p\u003e\n \u003cp\u003e\u0026lt;Insert Table \u003cspan class=\"InternalRef\"\u003e3\u003c/span\u003e about here\u0026gt;\u003c/p\u003e\n\u003c/div\u003e\n\u003cdiv id=\"Sec14\" class=\"Section2\"\u003e\n \u003ch2\u003e4.2. Change of controller\u0026rsquo;s shareholdings and NCLSs\u0026rsquo; activism\u003c/h2\u003e\n \u003cp\u003eTable \u003cspan class=\"InternalRef\"\u003e4\u003c/span\u003e examines how the change of controller\u0026rsquo;s shareholdings influences shareholder activism by newly-entered NCLSs. The structure of the table is consistent with that of Table \u003cspan class=\"InternalRef\"\u003e3\u003c/span\u003e. The empirical results show that the coefficient of \u003cem\u003eChange\u003c/em\u003e is significantly negative in all models. This finding indicates that as controlling shareholders increase their stake to consolidate control, it becomes more difficult for newly-entered NCLSs to appoint directors, thus supporting \u003cem\u003eHypothesis\u003c/em\u003e \u003cspan class=\"InternalRef\"\u003e\u003cem\u003e2\u003c/em\u003e\u003c/span\u003e. This is likely because, as controlling shareholders strengthen their control, they not only solidify their decision-making power but also reduce their reliance on external investors, making them less inclined to accommodate other large shareholders in governance. As a result, newly-entered NCLSs face greater barriers in gaining board representation. This result thus highlights the significant impact of controlling shareholders\u0026rsquo; attitudes toward control rights on shareholder activism by newly-entered NCLSs.\u003c/p\u003e\n \u003cp\u003e\u0026lt;Insert Table \u003cspan class=\"InternalRef\"\u003e4\u003c/span\u003e about here\u0026gt;\u003c/p\u003e\n\u003c/div\u003e\n\u003cdiv id=\"Sec15\" class=\"Section2\"\u003e\n \u003ch2\u003e4.3. Relative power and NCLSs\u0026rsquo; activism\u003c/h2\u003e\n \u003cp\u003eTable \u003cspan class=\"InternalRef\"\u003e5\u003c/span\u003e shows the results of the impact of relative power on shareholder activism by newly-entered NCLSs. The structure of the table is consistent with that of Table \u003cspan class=\"InternalRef\"\u003e3\u003c/span\u003e. The empirical results suggest that the greater the relative power of newly-entered NCLSs compared to controlling shareholder, the more likely they are to appoint directors to the board. This could be attributed to the fact that when NCLSs have a relatively higher shareholding proportion, both their motivation and ability to implement shareholder activism are enhanced. The higher relative power not only boosts their bargaining position but also facilitates more effective negotiation with controlling shareholder, increasing their ability to seek more board seats to actively influence company decisions and protect their own interests. As such, our findings support \u003cem\u003eHypothesis\u003c/em\u003e \u003cspan class=\"InternalRef\"\u003e\u003cem\u003e3\u003c/em\u003e\u003c/span\u003e, confirming that relatively higher shareholding proportions of NCLSs are positively correlated with an increase of director appointments, while a relatively lower power constrains NCLSs\u0026rsquo; activism despite existing motivations. These findings underscore the critical role of power dynamics between new entrants and entrenched incumbents in shaping the landscape of shareholder activism.\u003c/p\u003e\n \u003cp\u003e\u0026lt;Insert Table \u003cspan class=\"InternalRef\"\u003e5\u003c/span\u003e about here\u0026gt;\u003c/p\u003e\n\u003c/div\u003e\n\u003cdiv id=\"Sec16\" class=\"Section2\"\u003e\n \u003ch2\u003e4.4. Business ties and NCLSs\u0026rsquo; activism\u003c/h2\u003e\n \u003cp\u003eTable \u003cspan class=\"InternalRef\"\u003e6\u003c/span\u003e explores the impact of business ties on shareholder activism by newly-entered NCLSs. The structure of the table is consistent with that of Table \u003cspan class=\"InternalRef\"\u003e3\u003c/span\u003e. As shown in Table \u003cspan class=\"InternalRef\"\u003e6\u003c/span\u003e, the coefficient of \u003cem\u003eTie\u003c/em\u003e is significantly positive across all models, indicating that NCLSs with business ties to the invested firm are more likely to appoint directors, supporting \u003cem\u003eHypothesis\u003c/em\u003e \u003cspan class=\"InternalRef\"\u003e\u003cem\u003e4\u003c/em\u003e\u003c/span\u003e. This result can be explained by the fact that when NCLSs are part of the invested company\u0026rsquo;s supply chain, the resources they bring grant them greater bargaining power in securing board appointments for shareholder activism. Furthermore, these business ties facilitate increased communication and trust, which helps alleviate concerns about control contests and reduce information asymmetry between the new shareholders and the controlling shareholder. This, in turn, makes the controlling shareholder more willing to accept NCLSs in governance to lower transaction costs and improve operational efficiency. These findings thus suggest that establishing business ties and owning resources valuable to the company are critical factors for newly-entered NCLSs to successfully engage in shareholder activism.\u003c/p\u003e\n \u003cp\u003e\u0026lt;Insert Table \u003cspan class=\"InternalRef\"\u003e6\u003c/span\u003e about here\u0026gt;\u003c/p\u003e\n\u003c/div\u003e\n\u003cdiv id=\"Sec17\" class=\"Section2\"\u003e\n \u003ch2\u003e4.5. Further analyses\u003c/h2\u003e\n \u003cdiv id=\"Sec18\" class=\"Section3\"\u003e\n \u003ch2\u003e4.5.1. Property nature and NCLSs\u0026rsquo; activism\u003c/h2\u003e\n \u003cp\u003eState-owned controlling shareholders are generally perceived to possess more power compared to non-state-owned counterparts, exerting influence beyond mere economic factors. This perception is largely attributed to government support, as described by Shleifer and Vishny (\u003cspan class=\"CitationRef\"\u003e1994\u003c/span\u003e), which includes policy support stemming from bearing policy burdens and receiving special governmental protection. Additionally, their influence extends into political power, manifesting as implicit exchanges of interests with financial institutions in investment and financing activities. Consequently, in SOEs, controlling shareholders typically enjoy a more stable position and encounter fewer threats to control. As such, we examine whether the entry mode, change of controller\u0026rsquo;s shareholdings, relative power and business ties affect newly-entered NCLSs\u0026rsquo; activism differently depending on the property nature of firm. The property nature is a dummy variable, which equals one if the ultimate controller of the firm is a state-owned enterprise, government agency, public institution, central authority, or local authority, and zero otherwise.\u003c/p\u003e\n \u003cp\u003eTable \u003cspan class=\"InternalRef\"\u003e7\u003c/span\u003e reports the results, with SOEs accounting for 27.75% of listed firms with newly-entered NCLSs. Panel A shows that direct secondary market purchases significantly hinder NCLSs\u0026rsquo; activism in non-SOEs but not in SOEs. This may be because non-SOEs perceive such entries as control threats and adopt defensive measures, whereas SOEs, with rigid state-backed control, are less likely to treat new entrants as serious challengers. Similarly, Panel B finds that increases in controlling shareholders\u0026rsquo; stakes impede activism in non-SOEs but not in SOEs, as non-SOE controllers are more vigilant in protecting control, while SOEs rely on entrenched state control to deter challenges. Finally, Panels C and D indicate that higher relative power and business ties promote activism by newly-entered NCLSs in both SOEs and non-SOEs.\u003c/p\u003e\n \u003cp\u003e\u0026lt;Insert Table \u003cspan class=\"InternalRef\"\u003e7\u003c/span\u003e about here\u0026gt;\u003c/p\u003e\n \u003c/div\u003e\n \u003cdiv id=\"Sec19\" class=\"Section3\"\u003e\n \u003ch2\u003e4.5.2. Corporate culture and NCLSs\u0026rsquo; activism.\u003c/h2\u003e\n \u003cp\u003eCulture, as an informal institution, significantly influences corporate valuation and actions (Graham et al., \u003cspan class=\"CitationRef\"\u003e2022\u003c/span\u003e). Chatman and O\u0026rsquo;Reilly (\u003cspan class=\"CitationRef\"\u003e2016\u003c/span\u003e) argue that culture plays a pivotal role in shaping members\u0026apos; focus, guiding their attitudes, and influencing behaviors. Building on this theoretical foundation, we propose that a collaborative corporate culture can impact the ability of NCLSs to engage in activism.\u003c/p\u003e\n \u003cp\u003eTo operationalize the measurement of collaborative culture, we first identify and quantify the keywords related to collaborative corporate culture, such as sharing, collaboration, coordination, communication, and alliance in firms\u0026rsquo; annual reports. We then calculate the proportion of these keywords relative to the total word count in each report. The data for this analysis are sourced from the CNRDS database. To further explore the relationship between corporate culture and shareholder activism, we divide the sample into two groups based on the annual median level of collaborative culture. Subsequently, we conduct subgroup analyses to examine the differential impact of corporate culture on shareholder activism initiated by newly-entered NCLSs across these groups. The results of these analyses are presented in Table \u003cspan class=\"InternalRef\"\u003e8\u003c/span\u003e.\u003c/p\u003e\n \u003cp\u003ePanels A and B show that the inhibitory effects of direct secondary market acquisitions and increased controller shareholdings on NCLSs\u0026rsquo; activism are significant only in firms with low collaborative culture, but attenuated in those with high collaborative culture. This divergence likely reflects the role of collaborative norms in shaping governance dynamics. In high collaboration environments, institutionalized open communication channels and mutual trust reduce the perceived adversarial stakes of activism, fostering cooperative resolutions to conflicts. Simultaneously, collaborative cultures may incentivize controlling shareholders to view newcomers\u0026rsquo; participation as value-enhancing, rather than a challenge to authority. Panels C and D further demonstrate that higher relative power and business ties are consistently associated with greater NCLSs\u0026rsquo; activism across both subsamples.\u003c/p\u003e\n \u003cp\u003e\u0026lt;Insert Table \u003cspan class=\"InternalRef\"\u003e8\u003c/span\u003e about here\u0026gt;\u003c/p\u003e\n \u003c/div\u003e\n \u003cdiv id=\"Sec20\" class=\"Section3\"\u003e\n \u003ch2\u003e4.5.3. Marketization and NCLSs\u0026rsquo; activism.\u003c/h2\u003e\n \u003cp\u003eInstitutional theory posits that institutions, as elements of the environment, provide regulatory, normative and cognitive structures and activities that offer stability and meaning to social behavior. Moreover, institutions impose constraints on organizations, compelling those within the same institutional domain to conform to similar external institutional factors and thus exhibit convergent behaviors. Corporate governance bodies typically seek advantages while adapting to their environment, and the effectiveness of shareholder activism is, to some extent, contingent upon the institutional environment in which a company operates. Therefore, understanding the impact of institutional environment on the ability of shareholders to engage in activism is crucial.\u003c/p\u003e\n \u003cp\u003eWith the advancement of marketization reforms, China\u0026rsquo;s central government has gradually decentralized authority to local governments, which in turn delegated power to enterprises. This process facilitated the rise of multiple large shareholders and enabled new large shareholders to engage in activism. Yet, because of differences in history, geography, transportation, and policy, the degree of marketization varies considerably across regions. Following Wang et al. (2021), we divide the sample into two groups based on the median of marketization index\u003ca href=\"#_ftn1\" name=\"_ftnref1\" title=\"\"\u003e\u003c/a\u003e\u003csup\u003e1\u003c/sup\u003e by \u0026nbsp;year and conduct subgroup analyses. Table \u003cspan class=\"InternalRef\"\u003e9\u003c/span\u003e reports the results.\u003c/p\u003e\n \u003cp\u003ePanels A and B show that in highly marketized regions, NCLSs entering through direct purchases in the secondary market or facing increases in controllers\u0026rsquo; shareholdings encounter greater obstacles to appoint directors, while in less marketized regions these effects are not significant. This disparity may be linked to the fact that highly marketized regions tend to have more active control markets, where controlling shareholders perceive greater threats to their dominance and respond with stronger defensive actions. Panel C indicates that greater relative power facilitates NCLSs\u0026rsquo; activism across both subgroups. Panel D further shows that business ties promote board representation only in highly marketized regions, where competitive pressures encourage controllers to collaborate with NCLSs who bring business synergies.\u003c/p\u003e\n \u003cp\u003e\u0026lt;Insert Table \u003cspan class=\"InternalRef\"\u003e9\u003c/span\u003e about here\u0026gt;\u003c/p\u003e\n \u003c/div\u003e\n \u003cdiv id=\"Sec21\" class=\"Section3\"\u003e\n \u003ch2\u003e4.5.4. Value effect\u003c/h2\u003e\n \u003cp\u003eTo further assess the consequences of NCLSs\u0026rsquo; activism, we examine its impact on firm value. Specifically, we use the change in Tobin\u0026rsquo;s Q as the dependent variable to capture value effects and include a comprehensive set of controls, including \u003cem\u003eSize\u003c/em\u003e, \u003cem\u003eLev\u003c/em\u003e, \u003cem\u003eROA\u003c/em\u003e, \u003cem\u003eGrowth\u003c/em\u003e, \u003cem\u003eCapital\u003c/em\u003e, \u003cem\u003eTop\u003c/em\u003e, \u003cem\u003eSOE\u003c/em\u003e, \u003cem\u003eBoard\u003c/em\u003e, \u003cem\u003eDual\u003c/em\u003e. We further include \u003cem\u003eIntangible\u003c/em\u003e (the ratio of intangible assets to total assets), as a firm\u0026rsquo;s investment in intangible assets directly affects its value. Additionally, we add two NCLS-related variables: \u003cem\u003eIf_Institution\u003c/em\u003e (a dummy variable equals one if the NCLS is an institutional investor) and \u003cem\u003eIf_Foreign\u003c/em\u003e (a dummy variable equals one if the NCLS is a foreign investor), to control for the characteristics of the new entrants themselves. The results are shown in Table \u003cspan class=\"InternalRef\"\u003e10\u003c/span\u003e.\u003c/p\u003e\n \u003cp\u003eThe regression results show that, after adding these control variables, the coefficient on board representation by NCLSs is significantly positive, indicating that their activism through director appointments is associated with firm value enhancement. These findings suggest that director appointments not only provide NCLSs with a viable mechanism to translate motivation into governance influence, but also yield tangible benefits for firm performance. This evidence reinforces the argument that, in a concentrated ownership such as China\u0026rsquo;s, shareholder activism does not necessarily manifest through confrontational mechanisms, but can operate through collaborative and embedded forms of governance that align with both institutional conditions and cultural preferences.\u003c/p\u003e\n \u003cp\u003e\u0026lt;Insert Table \u003cspan class=\"InternalRef\"\u003e10\u003c/span\u003e about here\u0026gt;\u003c/p\u003e\n \u003c/div\u003e\n\u003c/div\u003e\n\u003cdiv id=\"Sec22\" class=\"Section2\"\u003e\n \u003ch2\u003e4.6. Robustness checks\u003c/h2\u003e\n \u003cdiv id=\"Sec23\" class=\"Section3\"\u003e\n \u003ch2\u003e4.6.1. Propensity score matching\u003c/h2\u003e\n \u003cp\u003eTo mitigate the potential impact of NCLSs selectively entering companies where they can appoint directors, we employ the \u003cem\u003ek\u003c/em\u003e nearest neighbour method with calliper widths of 0.05 and set \u003cem\u003ek\u003c/em\u003e\u0026thinsp;=\u0026thinsp;2 to construct a PSM sample. It matches companies that have NCLSs appointing directors with those of similar size, profitability, and board size, but where NCLSs do not appoint directors. The results are reported in Table \u003cspan class=\"InternalRef\"\u003e11\u003c/span\u003e, and the main conclusions of the study remain unchanged.\u003c/p\u003e\n \u003cp\u003e\u0026lt;Insert Table \u003cspan class=\"InternalRef\"\u003e11\u003c/span\u003e about here\u0026gt;\u003c/p\u003e\n \u003c/div\u003e\n \u003cdiv id=\"Sec24\" class=\"Section3\"\u003e\n \u003ch2\u003e4.6.2. Alternative measurements of shareholder activism.\u003c/h2\u003e\n \u003cp\u003eTo further analyze shareholder activism, we substitute the dependent variable in our analysis. We employ the proportion of directors appointed by newly-entered NCLSs to non-independent directors (\u003cem\u003eRate_NonIndBoard\u003c/em\u003e) as a proxy for shareholder activism. The experimental results, as shown in Panel A of Table \u003cspan class=\"InternalRef\"\u003e12\u003c/span\u003e, indicate significant negative coefficients for \u003cem\u003eDirect\u003c/em\u003e and \u003cem\u003eChange\u003c/em\u003e, and positive coefficients for \u003cem\u003eRelative\u003c/em\u003e and \u003cem\u003eTie\u003c/em\u003e, consistent with prior findings.\u003c/p\u003e\n \u003cp\u003eAdditionally, as the shareholders\u0026rsquo; meeting is the highest decision-making body of a company where shareholders can exercise their voting rights to influence corporate decisions, we also consider participation in shareholder meetings of NCLSs (\u003cem\u003eParticipant\u003c/em\u003e) as another proxy for shareholder activism. Yet, due to an incomplete disclosure about attendance at these meetings, we first estimate the number of large shareholders participating in the shareholders\u0026rsquo; meeting based on the disclosed total number of participants and the number of minority shareholders. If this estimated number for large shareholders is one or less, we infer non-participation in the meeting for NCLSs. For samples without disclosure of the number of minority shareholders participating in shareholders\u0026rsquo; meeting, we analyze the shareholdings of the top two largest shareholders relative to the total shares presenting at the meeting and divide them into two groups based on the sample mean of 104.5%. If the shareholdings exceed this mean, it is inferred that the newly-entered NCLSs probably do not attend the meeting. We apply a logistic regression model to the binary variable \u003cem\u003eParticipant\u003c/em\u003e, and the results are displayed in Panel B of Table \u003cspan class=\"InternalRef\"\u003e12\u003c/span\u003e. The empirical results confirm the robustness of our conclusions.\u003c/p\u003e\n \u003cp\u003e\u0026lt;Insert Table \u003cspan class=\"InternalRef\"\u003e12\u003c/span\u003e about here\u0026gt;\u003c/p\u003e\n \u003c/div\u003e\n \u003cdiv id=\"Sec25\" class=\"Section3\"\u003e\n \u003ch2\u003e4.6.3. Confounding factors\u003c/h2\u003e\n \u003cp\u003eTo mitigate the risk of confounding factors from common shocks at the region level affecting the appointment of directors by NCLSs, we incorporate province fixed effects in our analysis. The results are reported in Panel A of Table \u003cspan class=\"InternalRef\"\u003e13\u003c/span\u003e. Additionally, to account for potential omitted variable bias related to the type of newly-entered NCLSs, we include fixed effects for shareholder types, categorized as individuals, institutional investors, other legal entities (excluding institutional investors), and others (such as asset management plans). The results for this analysis are reported in Panel B of Table \u003cspan class=\"InternalRef\"\u003e13\u003c/span\u003e. Our main conclusions remain consistent.\u003c/p\u003e\n \u003cp\u003e\u0026lt;Insert Table \u003cspan class=\"InternalRef\"\u003e13\u003c/span\u003e about here\u0026gt;\u003c/p\u003e\n \u003c/div\u003e\n \u003cdiv id=\"Sec26\" class=\"Section3\"\u003e\n \u003ch2\u003e4.6.4. Other robustness checks\u003c/h2\u003e\n \u003cp\u003eWe introduce a dummy variable, i.e., \u003cem\u003eIncrease\u003c/em\u003e, to examine the impact of the change of controller\u0026rsquo;s shareholdings on shareholder activism. This variable is set to one if there is no decrease in the holdings of the dominant owner compared to the previous year when the NCLSs enter the company, and zero otherwise. The empirical results (not reported) show that the coefficient of \u003cem\u003eIncrease\u003c/em\u003e is significantly negative, demonstrating that when the controllers increase shareholdings, it becomes more challenging for newly-entered NCLSs to appoint directors to implement shareholder activism.\u003c/p\u003e\n \u003cp\u003eThen, to examine the robustness of the effect of relative power on shareholder activism by newly-entered NCLSs, we employ the rank of their shareholding proportion among the top ten largest shareholders (\u003cem\u003eRank\u003c/em\u003e) as an alternative variable for relative power. The findings (not reported) suggest that a lower ranking is positively correlated with an increased constraints in appointing directors, confirming that a relatively weaker power hinders the effectiveness of NCLSs in executing shareholder activism.\u003c/p\u003e\n \u003cp\u003eGillan and Starks (\u003cspan class=\"CitationRef\"\u003e2000\u003c/span\u003e), who analyze 2,042 corporate governance proposals from 1987 to 1994, find that institutional investors or coordinated groups received more support for shareholder activism compared to individual investors. Considering that the identity of shareholders may significantly influence their ability to engage in shareholder activism, we exclude samples where the newly-entered NCLSs are individual investors. Our findings (not reported) remain robust among newly-entered non-individual NCLSs.\u003c/p\u003e\n \u003cp\u003eAcknowledging the potential impact of CEO power on director appointments (Arthur, \u003cspan class=\"CitationRef\"\u003e2001\u003c/span\u003e), we additionally include CEO tenure (\u003cem\u003eTenure\u003c/em\u003e) as a control variable. CEO tenure is defined as the natural logarithm of the total number of months from the CEO\u0026rsquo;s start date to the end of the year when NCLSs enter, plus one. According to Tien, Chen, and Chuang (\u003cspan class=\"CitationRef\"\u003e2013\u003c/span\u003e), longer CEO tenures is positively correlated with greater CEO power over company. Our main regression results remain robust in this additional test (not reported).\u003c/p\u003e\n \u003c/div\u003e\n\u003c/div\u003e"},{"header":"5. Conclusions","content":"\u003cp\u003eThe study examines the factors influencing shareholder activism by newly-entered NCLSs through the appointment of directors, focusing on 527 firms from 2006 to 2022. These companies form an ownership structure with multiple large shareholders, with the newly-entered privately controlled NCLSs, resulting in a total of 926 shareholder-year observations. Findings reveal that direct secondary market purchases and increased controlling shareholder holdings constrain NCLSs\u0026rsquo; activism, while greater relative power and business ties facilitate governance engagement, moderated by internal and external institutional factors such as property nature, corporate culture, and marketization levels. These results, shaped by China\u0026rsquo;s concentrated ownership, mixed-ownership reforms, and weak shareholder protections, underscore the distinct power dynamics between NCLSs and controlling shareholders.\u003c/p\u003e \u003cp\u003eIn conclusion, this study deepens the understanding of shareholder activism in concentrated ownership contexts by illuminating how interactions between NCLSs and controlling shareholders shape the former\u0026rsquo;s activism. It underscores that activism in China operates through culturally resonant and institutionally feasible pathways such as board representation. By highlighting these dynamics, the study contributes to governance theory, enriches comparative insights into activism across markets, and offers practical implications for building more effective and sustainable governance structure in emerging economies.\u003c/p\u003e"},{"header":"Declarations","content":"\u003ch2\u003eAuthor Contribution\u003c/h2\u003e\n\u003cp\u003eYujia Yin: Conceptualization, Writing-original draft, Writing-review \u0026amp; editing, Methodology, Formal analysis. Kai Wang: Methodology, Data curation, Writing-review \u0026amp; editing. Lihong Wang: Funding acquisition, Conceptualization, Writing-review \u0026amp; editing, Project administration.\u003c/p\u003e\n\u003ch2\u003eData Availability\u003c/h2\u003e\n\u003cp\u003eData are available from the corresponding author upon reasonable request.\u003c/p\u003e"},{"header":"References","content":"\u003col\u003e\n \u003cli\u003eAggarwal R, Saffi P, Sturgess J (2015) The role of institutional investors in voting: evidence from the securities lending market. J Finance 70:2309\u0026ndash;2346. https://doi.org/10.1111/jofi.12284\u003c/li\u003e\n \u003cli\u003eArthur N (2001) Board composition as the outcome of an internal bargaining process: empirical evidence. J Corp Finance 7:307\u0026ndash;340. https://doi.org/10.1016/S0929-1199(01)00024-4\u003c/li\u003e\n \u003cli\u003eBaloria V, Klassen K, Wiedman C (2019) Shareholder activism and voluntary disclosure initiation: the case of political spending. 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Pac-Basin Finance J 93:102902. https://doi.org/10.1016/j.pacfin.2025.102902\u003c/li\u003e\n \u003cli\u003eZhang R, Lin Y, Kuang Y (2022) Will the governance of non-state shareholders inhibit corporate social responsibility performance? evidence from the mixed-ownership reform of China\u0026rsquo;s state-owned enterprises. Sustainability 14:527. https://doi.org/10.3390/su14010527\u003c/li\u003e\n\u003c/ol\u003e"},{"header":"Footnotes","content":"\u003col\u003e\u003cli\u003e\u003cspan\u003e Chinese marketization index measures marketization based on factors such as government-market relations, the growth of the non-state-owned economy, the maturity of product and factor markets, and the evolution of market intermediaries and the legal framework.\u003c/span\u003e\u003c/li\u003e\u003c/ol\u003e"}],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":true,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":false,"hideJournal":true,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":false,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":false,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true},"keywords":"Corporate governance, Shareholder activism, Non-controlling large shareholders, Director’s appointment, Multiple large shareholders","lastPublishedDoi":"10.21203/rs.3.rs-8032944/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-8032944/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eUsing a sample of non-financial listed firms in China with non-controlling large shareholders (NCLSs) from 2006 to 2022, we examine the determinants of NCLSs’ ability to engage in shareholder activism through director appointments and analyze how institutional environments shape these processes. We find that NCLSs are less likely to appoint directors when entering a firm through direct purchases in the secondary market or when the controlling shareholders increase their holdings. By contrast, NCLSs with a relatively greater power or business ties to the firm are more likely to engage in activism. Additional analyses reveal that the negative effects of direct entry and controlling shareholders’ increased holdings are contingent on contextual factors such as property nature, corporate culture, and marketization levels. We further find that NCLSs’ activism can significantly enhance firm value. Overall, our findings highlight that NCLSs’ activism is shaped not only by their own motivations but also by their dynamic interactions with controlling shareholders. The study provides new insights into the interplay between multiple large shareholders and shareholder activism in emerging markets, and underscores the importance of collaborative governance strategies among large shareholders in concentrated ownership.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eJEL codes:\u003c/strong\u003e G32, G34, O16\u003c/p\u003e","manuscriptTitle":"Motivation versus Action: Shareholder activism by non-controlling shareholders in China","msid":"","msnumber":"","nonDraftVersions":[{"code":1,"date":"2026-01-14 19:40:13","doi":"10.21203/rs.3.rs-8032944/v1","editorialEvents":[{"type":"communityComments","content":0}],"status":"published","journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true}}],"origin":"","ownerIdentity":"5e1202ec-72b4-4f6e-90e8-37979210d322","owner":[],"postedDate":"January 14th, 2026","published":true,"recentEditorialEvents":[],"rejectedJournal":[],"revision":"","amendment":"","status":"posted","subjectAreas":[],"tags":[],"updatedAt":"2026-01-14T19:40:13+00:00","versionOfRecord":[],"versionCreatedAt":"2026-01-14 19:40:13","video":"","vorDoi":"","vorDoiUrl":"","workflowStages":[]},"version":"v1","identity":"rs-8032944","journalConfig":"researchsquare"},"__N_SSP":true},"page":"/article/[identity]/[[...version]]","query":{"redirect":"/article/rs-8032944","identity":"rs-8032944","version":["v1"]},"buildId":"XKTyCvWXoU3ODBz1xrDgd","isFallback":false,"isExperimentalCompile":false,"dynamicIds":[84888],"gssp":true,"scriptLoader":[]}