Study Of Governance Performance Of Power Balance With Shareholder Structure In Chinese Listed Firms

Since La Porta et al (1999) found that the prevalence of ownership structure is concentrated in large shareholders rather than dispersed among small shareholders in Berle and Means'image, study about agent problem between controlling shareholders and minority shareholders has becoming the main stream of corporate governance studies. However, analyses about literatures tell us that existing studies are mostly focused on the entrenchment of controlling shareholders but few attention have been paid to the inhibition of the entrenchment. Moreover, in research methods, most studies analyse the agent conflict indirectly by examining the effects of controlling shareholders on firms'value and few directly by investigating the concrete behaviour of entrenchment. Additionally, few studies indicate that power balance with shareholder structure may play a positive role in corporate governance but their conclusions are always inconsistent or even contradicting with one another. Therefore, it is needed to study whether power balance with shareholder structure can inhabit the entrenchment of controlling shareholders and thus improve firms'value in Chinese listed firms or how about the governance performance of power balance with shareholder structure.Based on the above analyses, governance performance of power balance with shareholder structure in Chinese listed firms will be discussed in this paper and attempt to follow: 1) the inhibition of power balance with shareholder structure on the entrenchment of controlling shareholders; 2) its economic consequences such as firms'value and consideration payment. Concretely, the following research has been developed in this paper.Firstly, the effects of ownership concentration and power balance with shareholder structure on the entrenchment of controlling shareholders are described by extending LLSV model in 2002 and tested by using data of related party transaction (RPT) in Chinese listed firms. Additionally, the entrenchment view of RPT and"tunnelling or propping"motives of controlling shareholders are discussed as well. Furthermore, preliminary evidence is submitted about the choice of large shareholders between monitoring and collusion, which is back-stepped by the result that the effect of power balance with shareholder structure is affected by their identities.Secondly, the effect of ownership concentration and power balance with shareholder structure on firms'value is analyzed by a simple model and tested by sample data of Chinese listed firms, which supports their positive role in corporate governance discussed above. At the same time, it is also found that large shareholders'identities affect the function of power balance with shareholder structure. Furthermore, the possible impact of entrenchment effect and measurement of firms'value is discussed as well.Finally, the economic consequences of ownership concentration and power balance with shareholder structure are analyzed by sample data of Chinese listed firms with non-tradable shares reform, which further supports the view that power balance with shareholder structure reduces the entrenchment of controlling shareholders and thus improves corporate governance. As a result, listed firms with power balance with shareholder structure will be required for low compensation ratio and the more power balance, the lower compensation ratio.Compared with related research, this paper has several contributions in:â‘ In theory, previous literatures about power balance with shareholder structure usually emphasize the monitoring of large shareholders and neglect the possibility of collusion among them to share private benefits of control. In fact, whether or nor power balance with shareholder structure does depends mostly on the choice of large shareholders between monitoring and collusion. Evidences show that the function of power balance with shareholder structure is affected by large shareholders'identities meaning that it may be one of determinents affecting the choice. Therefore, research view of above studies will be extended.â‘¡In empirical, unlike previous research, this paper tests the effects of power balance with shareholder structure in corporate governance by a direct and complete way rather than by an indirect way such as firms'values. Evidences show that power balance with shareholder structure has positive effects on the inhibition of entrenchement of controlling sharehoders, the enhancement of firms'values and the decreasing of compensation payment, which will be helpful to better understand corporate governance of controlling shareholders.â‘¢In specific, unlike previous research, this paper calculates together share proportion of associated shareholders and uses Shapley Power Index in estimating ownership concentration and power balance with shareholder structure. The improvement of measurement may be helpful to further studies of corporate governance of controlling shareholders.