Mutiple Large Shareholders,Property Rights,and Corporate Governance Effect

Ownership structure is the logical starting point for corporate governance(Becht et al.,2003).In Chinese context,the concentrated ownership and weak investor protection make the role of non-controlling large shareholders especially important in corporate governance(Allen et al.,2005).Typically,in recent years,a new round of mixed ownership reform of has been implemented in China,the contents of which include "promoting mixed ownership reform of state-owned enterprises","introducing non-state capital to state-owned enterprises" and "encouraging state-owned capital to invest in non-state-owned enterprises."This means that in the future,the mixture of private capital and state capital will be increasingly common.Particularly,in listed companies,more external large shareholders will be encouraged to invest the company,and the ownership structure will change from one controlling shareholder to multiple large shareholders.In this paper,we examine the corporate governance effects of external large shareholders by distinguishing the role of state and non-state large shareholders,to provide empirical evidence for the new round of mixed ownership reform in China.This paper selects the data of firms publicly traded on A-share market in China between 2006 to 2017,manually sorts out the nature of the top ten shareholders,and aggregates the shareholdings of related shareholders,to explore the governance role of external large shareholders.Considering that there are lots of differences in corporate governance between state-owned firms and private firms,this paper separately conducts analysis for state-owned firms and private firms.The main conclusions of this paper are as follows:First,non-state-owned large shareholders can reduce both principal-agent and principal-principal conflicts after they enter a state-owned firm.In addition,when the non-state-owned large shareholder buys from the secondary market,after the entry of other large shareholders,principal-agent costs and the expropriation type of principalprincipal conflicts decrease significantly,but the burden type of principal-principal conflicts cannot be reduced.When the non-state-owned large shareholder comes from the transfer of state-owned equity,the entry of non-state-owned large shareholders can reduce the burden type of principal-principal costs but not the principal-agent costs and the expropriation type of principal-principal costs.Further analysis find that the stronger the power of non-state-owned large shareholder,the more significant the drop in principal-agent and principal-principal costs;when the non-state-owned large shareholder comes from the transfer of state-owned equity,the entry of non-stateowned large shareholders can also promote the increase of the market value of stateowned firms.Second,the entry of non-state-owned large shareholders reduces the sensitivity between investment and cash flow,that is,it can relieve financing constraints of stateowned firms.This impact exists in central state-owned firms and local state-owned firms at the same time.The reduction in principal-agent and principal-principal costs is a potential mechanism to relieve such financing constraints.Moreover,the entry of nonstate-owned large shareholders will not affect the resource endowment of state-owned firms.In addition,the relief in financial constraint is more pronounced in subsample with high shareholding ratio of non-state-owned large shareholders,a low shareholding ratio but with more appointed directors,higher information transparency,and a higher degree of marketization in their regions.Furthermore,the entry of non-state-owned large shareholders can not only relieve financing constraints,but also curb excessive investment and improve performance of state-owned firms.Last,the entry of non-state-owned large shareholders in private firms is associated with significant decrease in principal-agent costs,and pronounced increase of firm performance.On the contrary,the entry of state-owned large shareholders not only cannot reduce the principal-agent costs or improve the performance,but also aggravate the principal-agent costs.Furthermore,the entry of state-owned large shareholders is associated with more government subsidies and excessive investment in a private firm.Finally,the appointment of directors by non-state-owned large shareholders after entering a private firm will improve firm performance.The main contributions of this article are:First,this article extends the research of multiple large shareholders by discussing the impact of the heterogeneity of property rights on corporate governance with multiple large shareholders,and emphasizing the impact of multiple large shareholders on the PA agency cost.Second,this article completes the research on mixed ownership reform of state-owned enterprises from two aspects,i.e.,agency cost and financing constraints,and also expands the scope of mixed ownership reform by discussing state-owned shareholders’ participation in private enterprises.This paper also contributed to existing research by extending the measurement of mixed reform of state-owned enterprises from the perspective of external major shareholders.Third,this article enriches the research of ownership structure.Specifically,this paper focuses a more dynamic perspective,i.e.,the entry of outside large shareholders,which could better explain the influence of changes in the ownership structure on corporate governance.