This study investigates the governance role of multiple large shareholders (MLS hereafter) in firms' investment decisions. Using a sample of 1640 Chinese firms listed on the Shanghai or Shenzhen stock markets, we compare the investment efficiency of firms having MLS with that of firms having a single large shareholder and find that the presence and power of MLS are associated with significantly higher investment efficiency. The results are robust after we address endogeneity and sample selection concerns. Further tests show that MLS exert governance mainly through “voice.” MLS tend to lower potential overinvestment and increase future investment performance. The impact of MLS on investment efficiency does not vary with a firm's access to resources and is less prominent in firms with stronger governance and less information asymmetry. Our results imply that MLS play a governance role and alleviate a firm's agency costs and information asymmetry manifested in a firm's investment efficiency.

We examine stock and bond market reactions to the key events leading to the passage of the Dodd–Frank Act to assess the markets’ expectations about the effectiveness of the Act on systemically important financial firms. Using small/medium sized domestic financial institutions as a control group, we find that large financial institutions overall had negative abnormal stock returns and positive abnormal bond returns, suggesting that the markets expect the Act to be effective in reducing these banks’ risk-taking. We further investigate the market reactions for (1) larger and more interconnected financial institutions; and (2) the Big 6 banks to evaluate the markets’ assessment about the effectiveness of the act in ending the too-big-to-fail policy. We document that larger and more interconnected financial institutions experienced more negative abnormal stock returns and more positive abnormal bond returns as compared to other banks in our sample, but these relations are not present during the final phase of the passage. Likewise, we find that both shareholders and bondholders of the Big 6 banks initially experienced significant negative returns, followed by insignificant returns during the final phase of the passage. These results appear to suggest the markets are doubtful about the effectiveness of the final version of the bill to end the too-big-to-fail status in particular for the Big 6 banks.