Ownership, institutions and firm value: Cross-provincial evidence from China

Abstract

 A positive role of central government control on firm value versus a negative one of its local peers.  A U-shaped relationship between ownership concentration and firm value despite a high inflection point.  Higher government quality enhances the positive effect of central government control while mitigating the negative impact of local government control.  The relationship between ownership concentration and firm value is attenuated by financial development, indicating the substitution effect between internal and external monitoring mechanisms.  Empirical evidence for the institutional embeddedness of Chinese corporate governance.

Board size and acquisition outcome: The moderating role of home country formal institutional development

“…In line with this view, Su et al (2019) find that the negative relationship between board size and firm risk taking is less pronounced when the informal institution of social trust is more developed. Similarly, prior studies focusing on the relationship between other corporate governance variables and the firm performance/valuation have concluded that the influence of corporate governance variables on the firm gets weaker when the formal institutions are more developed (Miletkov et al, 2017;Nguyen et al, 2015;Wang, 2018). In line with these findings, the results of this study show that the effect of board size on the likelihood of deal abandonment is less pronounced when the formal institutional development in the home country is high.…”

Corporate Governance Mechanisms, Ownership and Firm Value: Evidence from Listed Chinese Firms

“…In these jurisdictions major shareholders may be governments, families, individuals, financial institutions, and other corporations acting through a holding company or cross shareholding. In the Chinese framework, concentrated ownership structure and weak legal institutions are pervasive which creates a haven for investor expropriation (Wang 2018). Conflicts in governance systems where ownership is highly concentrated are largely between "inside" controlling shareholders and outside minority shareholders.…”

“…As argued by Schunck and Perales (2017), the hybrid model and the correlated random effects model are attractive alternatives to the standard random effects and fixed effects models primarily because they differentiate within and between cluster effects and combine the strengths of random and fixed effects models. While a fixed effects (FE) model can alleviate endogeneity problems by eliminating particular time invariant, firm-specific unobservables that affect both firm value and explanatory variables (Wang 2018), it only gives the "within groups" effect estimates to time varying variables leading to misinterpretation of insignificant coefficients when confronted with an almost time invariant variable such as corporate control nature in this particular research.…”

“…For example (Lozano et al 2016) used panel data methodology and applied the system GMM estimator on a sample of trans-national data from 16 European companies from year 2000 to 2009. Wang (2018), just like us, focused on China alone by using 6078 firm year observation from the Shanghai and Shenzhen Stock Exchanges listed firms, the research employed a random effects model that was augmented with the correlated random-effects approach (CRE). Moreover, Wang (2018) focused on examining only central state-owned firms and local state-owned firms while we extend our sample to all firms listed on the Shangai and Shenzhen Stock Exchanges.…”

“…Wang (2018), just like us, focused on China alone by using 6078 firm year observation from the Shanghai and Shenzhen Stock Exchanges listed firms, the research employed a random effects model that was augmented with the correlated random-effects approach (CRE). Moreover, Wang (2018) focused on examining only central state-owned firms and local state-owned firms while we extend our sample to all firms listed on the Shangai and Shenzhen Stock Exchanges. Our research, just like Lozano et al (2016) and Wang (2018), uses market-based indicators to measure firm value contrary to the research by Yu (2013) which applied financial performance ratios.…”