Ownership structure, corporate governance and investment efficiency of Chinese listed firms

Abstract

Purpose

This paper aims to examine whether and how ownership structure and corporate governance have bearings on the investment efficiency of Chinese listed firms.

Design/methodology/approach

The authors measure the investment efficiency by following the work of Richardson (2006) and classify listed firms into two categories: state-owned enterprises (SOEs) and private firms. OLS regressions with both industry and year fixed effects are used to investigate the effect of ownership structure and governance mechanisms on the listed firms’ investment efficiency.

Findings

The authors find that ownership concentration has a negative impact on investment efficiency, and this effect is more pronounced in SOEs than in private firms. In addition, adoption of incentive-based compensation helps improve investment efficiency. Compared with other types of institutional investors, mutual funds are more likely to exert a positive effect on the investment efficiency of investee companies.

Originality/value

This paper examines the monitoring effect of governance mechanisms in China from a new perspective, which is the investment efficiency. Furthermore, previous studies provide minimal evidence indicating any effect of incentive-based compensation on firm performance in China. This study provides empirical evidence on this effect by using incentive-based compensation (whether CEOs have been granted stock options) as an explanatory variable in the regression models.

Citation

Chen, N., Sung, H.-C. and Yang, J. (2017), "Ownership structure, corporate governance and investment efficiency of Chinese listed firms", Pacific Accounting Review, Vol. 29 No. 3, pp. 266-282. https://doi.org/10.1108/PAR-12-2015-0046