Influence Of The Second Largest Shareholder On Corporate Governance

In recent years, corporate governance has always been a (the) research focus among scholars, and ownership structure is the key issue of corporate governance, reasonable ownership structure is beneficial to the perfection of corporate governance and the protection of small investors’interest. With the completion of split-share reform, the ownership structure of Chinese listed companies was more reasonable. As the reduction of ultimate control right and the increase of the second largest control right, the function of the second largest shareholders on corporate governance showed up, especially on the supervision and balance of controlling shareholders and the protection of investor’s interest. The battle for control of Gome in2008, made people recognize that the second largest shareholder plays an important role in corporate governance.According to the nature of the ultimate controlling shareholders, listed companies will be divided into state-owned, family and others, and according to the available types of ultimate control on second largest shareholders, second largest shareholders will be divided into state-owned, family, institutional investor and others. This paper studied the influence of second largest shareholders on corporate investment, agency cost, corporate transparency and corporate value in different listed companies and under different ownership structure, respectively. The main content of this paper is as follows;(1) Under absolute holding ownership structure, second largest shareholders couldn’t play the role of supervising effectively on the investment behavior of controlling shareholders; when the nature of controlling shareholders and second largest shareholders is same, the latter could affect companies’overinvestment; however, when the latter become institutional investors, it can’t slowdown companies’overinvestment and underinvestment; second largest shareholders would boost overinvestment behavior under low debt levels.(2) Under multi-large shareholder ownership structure, second largest shareholders can’t reduce the agency cost between managers and shareholders, and would increase managers’opportunism tendencies instead. Second largest shareholders have significant influence on ownership agency cost as it’s controlling right increase; the balancing power of control and cash flow rights among large shareholders, both have significant positive effect on ownership agency cost, and the variation of the balancing power of control has larger effect on ownership agency cost.(3) Second largest shareholders can’t improve information transparency of listed companies, the transparency would be reduced as the shareholding ratio of the second largest shareholders increases; when second largest shareholders are institutional investors, the transparency would be higher; corporate transparency is low with the same nature of controlling and second largest shareholders; in state-owned listed companies and the companies with ownership structure of controlling shareholders, the second largest shareholders choose to do nothing due to the limit of their ability, thus they have no effect on corporate transparency.(4) Under absolute holding ownership structure, second largest shareholders have less impact on corporate value. Under multi-large shareholder and dispersed ownership structure, lower Z-index is more conducive to increase corporate value. Moreover, second largest shareholders with different types have different effect on corporate value, and the difference among these shareholders is significant. There is a significant negative correlation between the control of second largest shareholders and corporate value. The higher the control, the lower the corporate value. The differences and similarities between the first and second largest shareholders have influence on corporate value, that is, if the nature of controlling shareholders and second largest shareholders are the same, there is a significant negative correlation between the control of second largest shareholders and corporate value. Corporate size also effect corporate value. With the same nature of top two shareholders, the larger the corporate size, the corporate value higher; while the corporate value lower with different nature of top two shareholders.