Identity of multiple large shareholders and corporate governance: are state-owned entities efficient MLS?

Sen Lin, Fengqin Chen and Lihong Wang ()
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Sen Lin: Xiamen University
Fengqin Chen: Xiamen University
Lihong Wang: Xiamen University

Review of Quantitative Finance and Accounting, 2020, vol. 55, issue 4, No 5, 1305-1340

Abstract: Abstract This paper empirically investigates how the identity of multiple large shareholders (MLS) affects principal-agent and principal–principal conflicts of interests in Chinese listed privately controlled firms during 2006–2017, by distinguishing between state-owned and non-state-owned MLS. We find that the presence of non-state-owned MLS significantly mitigates the principal-agent conflict of interests as manifested in a lower selling, general, and administrative expenses scaled by total sales (SG&A ratio) of Chinese listed privately controlled firms. However, this effect is not observed when state-owned entities serve as MLS. Although we do not observe a strong impact of non-state-owned MLS in reducing principal–principal conflict of interests, i.e., a lower ratio of related-party transactions (RPT), the presence of financial non-state-owned MLS helps to alleviate RPT in Chinese listed privately controlled firms. Conversely, state-owned MLS do not mitigate principal–principal conflict of interests but worsen it, as evidenced by a higher ratio of RPT. Additionally, the presence of state-owned MLS is associated with a large magnitude of overinvestment by and increased government subsidies to Chinese listed privately controlled firms. Finally, the entry of non-state-owned MLS enhances the performance of these firms, while the presence of state-owned MLS does not engender a performance-enhancement effect.

Keywords: Multiple large shareholders; Agency problems; Costs of political control; State-owned entity; Shareholder heterogeneity (search for similar items in EconPapers)
JEL-codes: G32 G34 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s11156-020-00875-z

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