Identity of multiple large shareholders and corporate governance: are state-owned entities efficient MLS?
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Identity of multiple large shareholders and corporate governance: are state‑owned entities efficient MLS? Sen Lin1 · Fengqin Chen2 · Lihong Wang2
© Springer Science+Business Media, LLC, part of Springer Nature 2020
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 nonstate-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 JEL Classification G32 · G34
1 Introduction Currently, studies on corporate governance (CG) are exploring the black box of complex ownership structures with multiple large shareholders (MLS hereafter). They argue that MLS play an efficient governance role through their participation in internal decision-making (see, * Lihong Wang [email protected] 1
School of Management, Xiamen University, Xiamen, China
2
Institute for Financial and Accounting Studies, Xiamen University, Siming Nanlu 422, Xiamen 361005, China
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e.g., Boateng and Huang 2017; Jiang et al. 2018), for example, by monitoring the controlling shareholder (Volpin 2002) or by competing for control by committing less expropriation (Pagano and Roell 1998) to improve firm performance (see, e.g., Bennedsen and Wolfenzon 2000). However, little attention is paid to the question of whether state-owned entities are efficient MLS. Particularly, the inefficiency of state-owned entities, which are owned by all the citizens and have political and social pursuits, in governance has been extensively demonstrated (see also Lin et al. 1998; Wei et al. 2005). The ambiguous property rights and the absence of accountability in state-owned enterprises (SOEs) facilitate insiders’
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