Agency Cost of Government Ownership: A Study of Voluntary Audit Committee Formation in China

Charlie X. Cai (), David Hillier, Gaoliang Tian and Qingghua Wu
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Qingghua Wu: University of Leeds - UK

No 903, Working Papers from Departament Empresa, Universitat Autònoma de Barcelona

Abstract: In this paper, we investigate the agency costs of government ownership and their impact on corporate governance and firm value. China is used as a laboratory because of the prevalent state shareholdings in exchange-listed firms. In this context, we specifically consider the trade-offs involved in the voluntary formation of an audit committee when the controlling shareholder is the state. The decision to improve corporate governance (in this case, introduce an audit committee) is shown to be value relevant and a function of existing agency relationships and non-trivial implementation costs. Our findings are robust to the level of pyramid groups, the ownership-control wedge, and financial leverage. The research adds to the debate regarding the effect of government shareholdings on corporate culture and performance - a topic that has taken on renewed importance in recent times.

Keywords: Government Owned Enterprises; Corporate Governance; Auditing; Audit Committee; Pyramid Groups. (search for similar items in EconPapers)
JEL-codes: G15 G18 G30 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2008-04, Revised 2009-02
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Published in Working Papers at the Department of Business, March pages 1-53

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Persistent link: https://EconPapers.repec.org/RePEc:bbe:wpaper:0903

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