Big companies around the world are using electronic voting more and more. This lets shareholders vote online instead of going to in-person meetings. It’s way easier for shareholders to join in through electronic voting. Even though more companies are going this route, we don’t have much proof of how it affects how they’re run.
To fill in this gap, the School of Business Administration at Chung-Ang University researched how electronic voting can impact a company’s cash holdings, which are basically the amount of money it has.
Different perspectives
Normally, a company’s cash should be worth what it says on paper. But in the stock market, people value it differently based on what they think the company will do with the money.
For example, if investors worry that a company might misuse the money, they might think the cash is worth less. On the flip side, if investors trust that the company is well-managed and looks out for shareholders, they might see the cash as more valuable.
The study suggests that using electronic voting makes shareholders think better about how a company is run. And this positive view links to the cash the company holds being valued more in the market. In simple terms, the study shows that electronic voting can make shareholders feel good about a company’s management, and that can boost the value of its cash in the market.
Corporate governance
“Electronic voting can contribute to effective corporate governance by easing shareholders’ monitoring and engagement in corporate decisions, which improves the firm’s investment decisions, resulting in increased market valuation of a firm’s cash holdings,” the researchers say.
The researchers looked at data from 12,207 Korean firms over the years 2015 to 2021. They wanted to see how the value of a company’s cash changed when they used electronic voting in shareholder meetings.
In Korea, companies are required to have in-person shareholder meetings, but they can also choose to use electronic voting. This unique setup allowed the researchers to focus on how electronic voting affected things without getting rid of the traditional in-person meetings.
Higher value
What they found was that companies using electronic voting had a higher market value for their cash compared to those sticking to traditional methods. This was especially true for companies with a lot of free cash flowing around, indicating that electronic voting had a more significant impact on companies with higher risks of misusing their assets. Essentially, electronic voting seemed to ease shareholders’ worries about management mishandling the money.
Interestingly, the researchers also discovered that the positive effect of electronic voting on the value of cash holdings was more noticeable for companies with a larger percentage of minority shareholders. This suggests that electronic voting makes it easier for all shareholders, including minorities, to participate in meetings. This could help prevent conflicts between those in control and minority shareholders.
In summary, the study shows that electronic voting has its perks, but it also raises a caution flag. The positive impact on governance might not be as strong if electronic voting doesn’t boost shareholder participation or if it attracts less experienced investors who might not make the best decisions.
