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Journal cover: Corporate Governance

Corporate Governance

ISSN: 1472-0701

Online from: 2001

Subject Area: Business Ethics and Law

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The non-monotonic governance effects of large shareholdings in Chinese listed companies: an overinvestment perspective


Document Information:
Title:The non-monotonic governance effects of large shareholdings in Chinese listed companies: an overinvestment perspective
Author(s):Jin-hui Luo, (Assistant Professor in the Department of Accounting, School of Management, Xiamen University, Xiamen, People's Republic of China), Di-fang Wan, (Professor of Organization Management in the Department of Enterprise Management, School of Management, Xi'an Jiaotong University, Xi'an, People's Republic of China)
Citation:Jin-hui Luo, Di-fang Wan, (2012) "The non-monotonic governance effects of large shareholdings in Chinese listed companies: an overinvestment perspective", Corporate Governance, Vol. 12 Iss: 1, pp.3 - 15
Keywords:Agency theory, Blockholder ownership, China, Corporate governance, Directors, Independent directors, Shareholders
Article type:Research paper
DOI:10.1108/14720701211191300 (Permanent URL)
Publisher:Emerald Group Publishing Limited
Acknowledgements:The authors are grateful to the Chinese National Science Funds for financial support (Grant No. 70572039 and 70972101). Received: October 2009. Revised: January 2010. Accepted: March 2010.
Abstract:

PurposeThe purpose of this paper is to explore the effects of large shareholdings from the agency problem perspective of overinvestment, and re-test the role of board independence in the context of concentrated ownership.

Design/methodology/approachUsing a five-year panel data of Chinese non-financial listed companies between 2001 and 2005, the paper estimates both a fixed-effects model and a random-effects model.

FindingsThe paper finds evidence of a significant non-monotonic relationship between large shareholdings and firm level overinvestment. It also finds that state-owned firms and firms with more independent directors experience lower level of overinvestment. However, firms with more frequent meetings experience a higher level of overinvestment.

Research limitations/implicationsThe paper's findings indicate that concentrated ownership is not always a bad thing. The crux of the matter is how to induce large shareholders' incentive to monitor managers' opportunistic behaviors and restrict their motivation to expropriate minority shareholders.

Practical implicationsIn the context of concentrated ownership, the key to improve corporate governance is to strengthen board independence.

Originality/valueThe paper provides useful information on non-monotonic governance effects of large shareholdings in Chinese listed companies and overinvestment.



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