Affiliated management and firm value: Evidence from China

Gaoping Zheng, Jian Xue and Xiao Chen

China Journal of Accounting Studies, 2014, vol. 2, issue 3, 172-199

Abstract: We provide evidence on how the presence of a top manager who is a controlling shareholder or the employee of a controlling shareholder (i.e. affiliated management) is associated with firm value. By analysing the data of Chinese listed firms in the A-share stock market from 2001 to 2009, we find that affiliated management is negatively associated with firm value. Furthermore, although firms with affiliated management have higher return on assets and return on sales, affiliated management is positively associated with the value and the frequency of loan-based related party transactions and with the likelihood of irregularity in information disclosure. Our findings imply that even if affiliated management may enhance shareholders’ ability to monitor managers and increase the operational profitability, affiliated management can facilitate the expropriation of the interests of the minority shareholders by the controlling shareholders.

Date: 2014
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DOI: 10.1080/21697213.2014.921366

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