Research On Collusion Between Major Shareholders & Company Managers And Corporate Governance Efficiency

In recent years, agency issue between controlling major shareholders and managers has become the focus of research in corporate governance field. Shleifer, Vishny and Johnson all thought that controlling major shareholders' invading to minority shareholders benefit is the core agency issue of modern company. Johnson et al. even use "tunneling" to describe the controlling shareholders'invading to minority shareholders. However, the newest research indicated that controlling major shareholders'invade to minority shareholders is the result of collusion with corporate managers. Because controlling shareholders rarely care about specific affairs of companies and only managers have the real capability to transfer company profits to private income, so major shareholders have to cooperate with managers and take advantage of managers' professional skill to realize their private interests. The Chinese market is an emerging and switching market. Because the development time is short, the investor legal protection system is not perfect, and moreover the government excessively uses administrative method to intervene economical movement instead of economic means and legal means, Chinese listed companies have formed the abnormal ownership structure of "one share dominates exclusively", which leads to serious invading of state-owned controlling shareholders to minority shareholders through collusion with corporate managers. Collusion between majors shareholders and managers not only damage interests of minority shareholders, but also upset the social economic order and harm the social welfare. So it is very important to further investigate collusion between major shareholders & managers of listed companies and seek effective precaution countermeasures.Based on Principal-agent theory and contract theory, This article analysed the cause and influence factors of collusion between major shareholders & managers, and the influence of collusion on corporate governance efficiency using both normative analysis method and positive method. The groundwork of this article can be summed up for the following several points:This article firstly analyzed the cause of major shareholder-manager collusion. Our research thought that the goals of major shareholders and managers are inconsistent with those of companies, major shareholders and managers have information asymmetry with minority shareholders, and private interests of major shareholders and managers are interdependent, which lead to collusion between major shareholders and managers.This article investigated the influence factors of major shareholder-manager collusion extent. The result of theoretical analysis and positive research both indicated that both corporate ownership structure, board of directors'constitution and so on internal governance structure and external governance environment including legalization level, government intervention degree and so on exert prominent influence on collusion. While internal governance structure depends on external governance environment, external governance environment is the basic influence factor.This article analyzed the influence of major shareholder-manager collusion on corporate governance efficiency. The result of theoretical analysis and empirical examination both support the following conclusion:Firstly, major shareholder-manager collusion cannot strengthen major shareholders'supervision over managers, instead it attenuates the supervision. Secondly, major shareholder-manager collusion contradicts corporate value promotion, so there is no force for major shareholders to drive managers' benefit compatible with corporate benefit by means of stock ownership incentive, which leads to distortion of incentive mechanism and drops the incentive efficiency. Thirdly, controlling resources out of investment is the basic source of collusion income. Under collusion condition, the criterion that major shareholders choose an investment project is that the sum of stockholder rights income and collusion income is bigger than zero, instead of the net present value of the project is bigger than zero. Such investment decision will lead to second optimal investment and over investment.Finally this article proposed some measures of guard against collusion between controlling major shareholders and managers. It argues that since the basic factor affecting the extent of collusion between controlling shareholders and managers of listed companies is the external governance environment, so the basic way of guard against collusion is to improve the external governance environment.