PurposeBased on the tournament theory and the principal agent theory, this study aims to empirically investigate how top management team (TMT) vertical pay disparity (the pay disparity between the CEO and non-CEO executives) influences firm innovation performance.Design/methodology/approachThis study empirically tested the hypotheses based on a sample of listed high-tech companies in China during the period between 2007 and 2018.FindingsTMT vertical pay disparity promotes innovation performance; CEO power undermines the positive effect of TMT vertical pay disparity on innovation performance; the negative moderating effect of CEO power is mitigated by board age and gender and educational levels, whereas the proportion of female directors has no such effect at any significant level.Originality/valueThis study uniquely contributes to the theoretical and empirical development of tournament theory and the principal agent theory.
PurposeThe authors analyze the effects of controlling shareholders' stock pledging on firms' strategic change behavior, and investigate how the balance of power between shareholders and analyst coverage moderates those effects.Design/methodology/approachEmploying fixed effects models, the authors test hypotheses based on Chinese listed company data from 2011 to 2017.FindingsControlling shareholders' stock pledges has a negative effect on strategic change. As the balance of power among shareholders and/or analyst coverage increases, it mitigates the effect of controlling shareholder stock pledges on strategic change. In particular, the balance of power between shareholders and analyst coverage weakened the relationship between controlling shareholder stock pledges and strategic change. Lastly, after distinguishing family from nonfamily firms, the authors discovered that these findings only held for family firms.Originality/valueThis study makes important contributions to strategic change, stock pledge and family firm literature, and also provides guidance on firms' strategic change practices.
PurposeNoncontrolling large shareholders can reduce the agency problem of executives and can reduce the expropriation or tunneling behavior of controlling shareholders, thereby promoting corporate innovation. However, too many noncontrolling large shareholders may also lead to excessive supervision, thereby inhibiting innovative activities that contribute to the long-term value of the firm. Research to date, however, has not examined the nonlinear impact of noncontrolling large shareholders on corporate innovation. Based on principal–agent theory and the too-much-of-a-good-thing (TMGT) effect, the authors discuss the inverted U-shaped influence of noncontrolling large shareholders on corporate innovation and the moderating effect of industry competition and corporate product diversification on the above relationship.Design/methodology/approachBased on the empirical data of Chinese listed companies from 2003 to 2017, the authors use the bidirectional fixed effects model to conduct empirical testing and robustness testing of the research hypotheses.FindingsThere is an inverted U-shaped relationship between noncontrolling large shareholders and corporate innovation; type I and type II agency costs play a mediating role between noncontrolling large shareholders and corporate innovation. In addition, firm product diversification weakens the inverted U-shaped relationship between noncontrolling large shareholders and corporate innovation, but industry competition has no significant moderating effect on the above relationship.Practical implicationsThis research has important implications for policy makers, to better activate corporate innovation vitality, and investors, to better choose investment targets. Specifically, investors and policy makers should be aware that an appropriate increase in larger noncontrolling shareholders can maximize the enthusiasm of firms for innovation and enhance corporate value, but they should also realize that having too many noncontrolling large shareholders may backfire.Originality/valueThis research helps the authors to understand the pros and cons of increasing the number of noncontrolling large shareholders more comprehensively and also helps to understand corporate innovation more comprehensively from a supervisory perspective. In addition, this research also enhances the explanatory and predictive power of the TMGT effect.
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