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Corporate governance of controlling shareholders and labor employment decisions: Evidence from a parent board reform in China

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  • Fan, Rui
  • Pan, Jianping
  • Yu, Minggui
  • Gao, Hao

Abstract

Controlling shareholders commonly expropriate minority shareholders in state-owned enterprises (SOEs) with concentrated ownership. To curb such behavior, studies have focused on the role of internal corporate governance structures and largely ignored the governance structure in relation to the controlling shareholders. Using a board reform that altered the governance of controlling shareholders in Chinese central SOEs between 2003 and 2019, we show that enhancing the controlling shareholders' corporate governance significantly reduces firms’ overinvestment in employees. We demonstrate that strengthening the monitoring of management is the most likely underlying channel for this association. Our findings indicate that governance enhancement of controlling shareholders mitigates human capital misallocation in SOEs, suggesting that reforming the governance structure of controlling shareholders is effective in enhancing SOE efficiency.

Suggested Citation

  • Fan, Rui & Pan, Jianping & Yu, Minggui & Gao, Hao, 2022. "Corporate governance of controlling shareholders and labor employment decisions: Evidence from a parent board reform in China," Economic Modelling, Elsevier, vol. 108(C).
    • Handle: RePEc:eee:ecmode:v:108:y:2022:i:c:s0264999321003424
    DOI: 10.1016/j.econmod.2021.105753
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    Cited by:

    1. Huang, Hua & Tao, Yunqing & Wang, Xueping & Feng, Chen & Ye, Yongwei, 2023. "Do board reforms in parent firms boost subsidiaries’ innovation?," Economic Modelling, Elsevier, vol. 125(C).
    2. Bai, Min & Fu, Yumei & Sun, Mingwei, 2023. "Corporate diversification and labor investment efficiency: Evidence from China," Economic Modelling, Elsevier, vol. 127(C).

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    More about this item

    Keywords

    Board reform; Controlling shareholder; Outside director; Labor investment efficiency;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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