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

Author

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  • Sen Lin

    (Xiamen University)

  • Fengqin Chen

    (Xiamen University)

  • Lihong Wang

    (Xiamen University)

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.

Suggested Citation

  • Sen Lin & Fengqin Chen & Lihong Wang, 2020. "Identity of multiple large shareholders and corporate governance: are state-owned entities efficient MLS?," Review of Quantitative Finance and Accounting, Springer, vol. 55(4), pages 1305-1340, November.
    • Handle: RePEc:kap:rqfnac:v:55:y:2020:i:4:d:10.1007_s11156-020-00875-z
    DOI: 10.1007/s11156-020-00875-z
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    More about this item

    Keywords

    Multiple large shareholders; Agency problems; Costs of political control; State-owned entity; Shareholder heterogeneity;
    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
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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