The ownership effect on corporate investment distortion in the transitional economies: Mitigating or exacerbating?

Ying Wu (), Hong Kim Duong (), E. Libin () and Hong Yao ()
Additional contact information
Ying Wu: Salisbury University
Hong Kim Duong: Old Dominion University
E. Libin: Dongbei University of Finance and Economics
Hong Yao: Salisbury University

Review of Quantitative Finance and Accounting, 2021, vol. 57, issue 2, No 5, 523-555

Abstract: Abstract This article analyzes how asymmetric information in corporate management and equity financing distorts corporate investment and how different corporate ownership (government, managerial, and foreign) affects investment distortion in a transitional economy. When managerial entrenchment is sufficiently high, government ownership further distorts investment by biasing downward managers’ net marginal cost of investment; in contrast, managerial and foreign ownership counter the bias and thereby reduce investment distortion. Furthermore, unlike government ownership, managerial and foreign ownership mitigate rather than exacerbate the extent to which high entrenchment distorts investment. An econometric analysis of a large sample of Chinese public firms provides strong evidence in support of these theoretical predictions.

Keywords: Corporate ownership; Investment distortion; Entrenchment; Asymmetric information; G32; L21; P31 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11156-020-00954-1

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