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

摘要

Purpose - The 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/approach - Using 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. Findings - The 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/implications - The 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 implications - In the context of concentrated ownership, the key to improve corporate governance is to strengthen board independence. Originality/value - The paper provides useful information on non-monotonic governance effects of large shareholdings in Chinese listed companies and overinvestment.