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Managerial ownership and financial distress: evidence from the Chinese stock market

Author

Listed:
  • Yuan George Shan
  • Indrit Troshani
  • Jimin Wang
  • Lu Zhang

Abstract

Purpose - This study investigates the convergence-of-interest and entrenchment effects on the relationship between managerial ownership and financial distress using evidence from the Chinese stock market. It also analyzes whether the relationship is mediated by research and development (R&D) investment. Design/methodology/approach - Using a dataset consisting of 19,059 firm-year observations of Chinese listed companies in the Shanghai and Shenzhen Stock Exchanges between 2010 and 2020, this study employs both piecewise and curvilinear models. Findings - The results indicate that managerial ownership has a negative association with firm financial distress in both the low (below 12%) and high (above 18%) convergence-of-interest regions of managerial ownership, suggesting that managerial ownership in this region may contribute to improve firm financial status. Meanwhile, managerial ownership has a positive association with firm financial distress in the entrenchment region (12–18%), implying that managerial ownership in the entrenchment region may contribute to impair firm financial status. Furthermore, the results show that R&D investment mediates the association between managerial ownership and financial distress. Originality/value - This study is the first to provide evidence of a nonlinear relationship between managerial ownership and financial distress, and identify the entrenchment region in the Chinese setting.

Suggested Citation

  • Yuan George Shan & Indrit Troshani & Jimin Wang & Lu Zhang, 2023. "Managerial ownership and financial distress: evidence from the Chinese stock market," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 20(1), pages 192-221, May.
    • Handle: RePEc:eme:ijmfpp:ijmf-06-2022-0270
    DOI: 10.1108/IJMF-06-2022-0270
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    Keywords

    Managerial ownership; Financial distress; R&D investment; China; G32; M41;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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