Ownership, governance mechanisms, and agency costs in China’s listed firms

Firth, Michael; Fung, Peter M.Y.; Rui, Oliver M.

doi:10.1057/jam.2008.13

Cited by 31 publications

(48 citation statements)

References 23 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…This is consistent with the prediction that large firms have more resources, experience economies of scale, and are able to effectively monitor managers' misconduct. This result is also consistent with Ang et al (2000), Singh and Davidson, (2003) and Firth et al (2008) among others. The coefficient associated with firm age (FAGE) is negative and statistically significant at the 10% level in only in state controlled firms.…”

Section: Agency Costs For State and Non-state Firmssupporting

confidence: 92%

“…Yet, they do not examine how other governance mechanisms affect agency costs that firm faces. Firth, Fung and Rui (2008) examine the relationship between ownership structure and governance mechanisms, on the one hand; and agency costs, on the other, for Chinese listed firms, focusing on a sample of 1,647 firm-year observations for 549 non-financial listed companies over the period 1998-2000. Firstly, they find that firms with foreign shareholding experience higher levels of agency costs, implying that foreign investors do not closely monitor managers' non-value maximising behavior, and that foreign ownership is associated with increased managerial discretionary/non-necessary expenditures (i.e.…”

Section: Evidence On the Links Between Agency Costs Ownership And Imentioning

confidence: 99%

See 1 more Smart Citation

Ownership Reform, State Ownership, Corporate Governance, and Agency Costs: The Case of Chinese Listed Companies

Vijayakumaran¹

2019

RWE

View full text Add to dashboard Cite

The aim of this paper is to examine the effect of 2005-ownership reform and state ownership on the linkages between corporate governance mechanisms and agency costs for Chinese listed firms. Based on a large panel of Chinese listed firms, we find that following the reform managerial ownership, institutional shareholdings and debt financing have emerged as effective governance mechanisms to reduce agency costs only for private-controlled firms in the post reform period. Therefore, our study concludes that the effectiveness of corporate governance mechanisms differ between state and private controlled firms and state ownership still hinders effectiveness of governance mechanisms among Chinese listed firms. This study contributes to the literature on the implications of ownership reform and state ownership for corporate governance and agency costs at the firm level in transition economies.

show abstract

Section: Agency Costs For State and Non-state Firmssupporting

confidence: 92%

Section: Evidence On the Links Between Agency Costs Ownership And Imentioning

confidence: 99%

Ownership Reform, State Ownership, Corporate Governance, and Agency Costs: The Case of Chinese Listed Companies

Vijayakumaran¹

2019

RWE

View full text Add to dashboard Cite

show abstract

“…Nonetheless, the results also stress that the beneficial effects of concentrated ownership dominate the costs of tunneling, as listed firms having an owner who controls a substantial fraction of voting rights trade at a significantly larger market-to-book ratio and perform better. The underlying rationale(s) need to be explored further, but one reason could be the reduced agency problems with managers, in line with Firth, Fung, and Rui (2008).…”

Section: Discussion Of Main Findingsmentioning

confidence: 99%

“…1 1 In contrast, most empirical studies examining Chinese listed firms have focused on the agency problems between managers and shareholders. Also, this research has typically analyzed the effects on firm value and financial performance (e.g., Bai et al., 2004; Firth et al., 2008). …”

mentioning

confidence: 99%

Expropriation of Minority Investors in Chinese Listed Firms: The Role of Internal and External Corporate Governance Mechanisms

Huyghebaert

Wang

2012

Corporate Governance

128

View full text Add to dashboard Cite

Manuscript Type: Empirical Research Question/Issue: We investigate how ownership structure, board characteristics, and regional differences in law enforcement and stock market development affect the conflict of interest between majority and minority investors in Chinese listed firms. For this purpose, we study related‐party transactions as well as labor redundancy, and classify firms as either state‐ or private‐controlled. Research Findings/Insights: We find that related‐party transactions grow more extensive as the wedge between the controlling shareholder's control rights and cash flow rights increases. Related‐party transactions also rise with voting rights held by the government in state‐controlled firms. Next, the state as controlling shareholder exacerbates labor redundancy. The control rights of the second to tenth largest investors can offset expropriation. Regarding board characteristics, we find that a larger fraction of directors affiliated with the dominant owner enlarges related‐party transactions, while large boards also increase labor redundancy in state‐controlled firms. We find only weak evidence that higher‐quality institutions help to restrain expropriation of minority investors. Theoretical/Academic Implications: In Chinese listed firms, a major conflict of interest arises between majority and minority investors. Also, the state may exercise its control rights to achieve imperative social and political objectives, to the detriment of external investors. Yet, as the stock market valuation and financial performance of state‐controlled firms rise with the fraction of shares held by the state, future research should better delineate the conditions under which state ownership is either detrimental or beneficial to firms. Next, the results indicate that governance mechanisms suggested by conventional agency theory are deficient in Chinese listed firms. Future research could therefore establish more clearly when internal and external governance mechanisms are likely to work, thereby also taking into account the identity of the controlling shareholder. Practitioner/Policy Implications: Investors should be aware that expropriation in Chinese listed firms has specific implications when the state is the controlling owner. Also, at this stage of development, independent directors and external governance mechanisms can hardly protect the best interests of minority investors. Rather, expropriation is counterbalanced when voting rights are concentrated in the hands of other large block holders. Policy makers should work on ownership restructuring, board independence, and institutional quality to better protect minority rights in Chinese listed firms.

show abstract

“…In this study, we argue that when studying the impact of ownership structure on dividend policy, the state-owned and legal person shares need to be treated separately. In addition to the difference on the ability to trade, research (Sun and Tong 2003, Wei et al 2005, Firth et al 2008) has shown that the State and the legal persons have different motivations and play different roles in monitoring the company's performance. While state shareholders represent the government and have their political consideration on companies, legal person shareholders, being mainly the corporations, pay more attention to the financial gain of listed companies.…”

Section: Hypotheses For Stock Dividend Paymentsmentioning

confidence: 99%

Stock dividend puzzles in China

Anderson

Chi

Ing-aram

et al. 2011

Journal of the Asia Pacific Economy

View full text Add to dashboard Cite

We examine the stock dividend puzzle in China by analysing the market reaction, who pays more or solely stock dividends compared with cash dividends and why. In general, stock dividends send a positive market signal that is stronger for larger stock dividends and simultaneous cash dividend declarations. Companies take advantage of this positive announcement reaction when they are cash poor, or have low profitability. In addition, when the overall market underperforms, cash dividends decrease while stock dividends increase significantly. Non-tradable shares are owned by two distinct groups that have different incentives and trading ability and therefore are likely to prefer different dividend policies. Consistent with this, we find evidence that state-owned shareholders prefer cash dividends, while legal person shareholders prefer stock dividends.

show abstract

Ownership, governance mechanisms, and agency costs in China’s listed firms

Cited by 31 publications

References 23 publications

Ownership Reform, State Ownership, Corporate Governance, and Agency Costs: The Case of Chinese Listed Companies

Ownership Reform, State Ownership, Corporate Governance, and Agency Costs: The Case of Chinese Listed Companies

Expropriation of Minority Investors in Chinese Listed Firms: The Role of Internal and External Corporate Governance Mechanisms

Stock dividend puzzles in China

Contact Info

Product

Resources

About