The nonlinear effect of shareholder ownership structure on a firm's cash holdings: Type I and Type II agency problem perspectives in China's split-share reform

Bingbing Huang, Xuehui Zhang and Qian Bi

International Review of Economics & Finance, 2022, vol. 77, issue C, 493-504

Abstract: Leveraging China's 2006 split-share reform (converting previously non-tradable shares into tradable shares) as an exogenous shock, we use an agency conflict framework to examine the impact of a shareholder ownership structure on a firm's cash holdings. Our findings suggest that both the top shareholder ownership percentage and the checks and balances of other large shareholders (the ratio of second- and third-largest shareholder combined ownership to that of the top shareholder) positively affect a firm's cash holdings after the Reform. However, the increase in cash holdings exhibits a decreasing rate. The results are consistent with the notion that both Type I (between management and shareholders) and Type II (between controlling and minority shareholders) agency problem affect a firm's cash holdings. While both state-owned firms (SOEs) and non-state-owned firms (non-SOEs) exhibit qualitatively similar findings, the impact of the top shareholder ownership and the checks and balances of other large shareholder structure changes on cash holdings is more salient among non-SOEs.

Keywords: The split-share reform; Shareholder ownership structure; Cash holdings; State-ownership (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:77:y:2022:i:c:p:493-504

DOI: 10.1016/j.iref.2021.10.014

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