We examine whether and how variations in the level of market development across regions in China affect controlling shareholders decisions to participate in Chinese public companies rights offerings. We find significant positive relations between measures of market development and controlling shareholders participation, as well as evidence that controlling shareholders participation benefits minority shareholders. These results are consistent with the hypothesis that better market development in an economy can provide de facto protection for minority shareholders by creat- ing implicit incentives for controlling shareholders to act in the interests of minority shareholders. Because our study holds constant minority shareholders de jure rights, these results suggest a reputation channel exists for macro-level institutions to affect firm-level governance that is distinct from the direct channel of explicitly granting de jure rights to minority shareholders.

We examine whether and how variations in the level of market development across regions in China affect controlling shareholders’ decisions to participate in Chinese public companies’ rights offerings. We find significant positive relations between measures of market development and controlling shareholders’ participation, as well as evidence that controlling shareholders’ participation benefits minority shareholders. These results are consistent with the hypothesis that better market development in an economy can provide de facto protection for minority shareholders by creating implicit incentives for controlling shareholders to act in the interests of minority shareholders. Because our study holds constant minority shareholders’ de jure rights, these results suggest a reputation channel exists for macro-level institutions to affect firm-level governance that is distinct from the direct channel of explicitly granting de jure rights to minority shareholders.