| The Decision of the Central Committee of the Communist Party of China on Some Major Issues Concerning Comprehensively Deepening the Reform adopted by the Third Plenary Session of the 18 th Central Committee of the Communist Party of China clearly pointed out that diversified ownership economy integrated by state-owned capital,collective capital and private capital is the prime method for materializing the basic economic system.Meanwhile,it encouraged more state-owned economies and other ownership economies to develop into diversified ownership economies.To develop diversified ownership economies,we must adhere to multiple channels and methods simultaneously,and realize the two-way entry of state-owned capital and non-state-owned capital.We must actively encourage non-state-owned capital to participate in the diversified ownership reform of state-owned enterprises,and also encourage state-owned capital to invest in non-state-owned enterprises in various ways.At the same time,it is also necessary to explore the implementation of employee stock ownership plans to realize the diversification of corporate property rights structure.The two-way entry of state-owned capital and non-state-owned capital is conducive to the equal use of production factors for various ownership economies.Meanwhile,developing employee shareholders from the enterprise is conducive to promoting the formation of an interest community between material capital owners and human capital owners,equitably sharing economic benefits,and realizing the progress for both nation and the people.The development of diversified ownerships by micro-enterprises is beneficial for various ownership capitals to learn from each other’s strengths.It is necessary to give full play to the scale,technology and management advantages of state-owned capital,and to exert the vitality and creativity of non-state-owned capital.The important practical reasons for this paper to study the internal control quality of diversified ownership reform enterprises are as follows: The important policy goals of diversified ownership reform are to continuously enhance the vitality,control,influence and anti-risk capacity for state-owned economies.Meanwhile,it also aims to promote the formation of an effective restraint mechanism for corporate operation and governance,realize the preservation and appreciation of state-owned assets,and promote the standardized and healthy development of the non-public economy.And the perfect internal control system is an important manifestation of micro-enterprise’ control and risk resistance capacity.These policy goals of diversified ownership reform are in line with the efficiency and compliance goals of corporate internal control.Therefore,this paper attempts to explore whether the diversified ownership reform has improved corporate internal control quality,which is an important part of evaluating the realization degree of diversified ownership reform policy goals and has important practical significance.Based on the institutional background and policy goals of diversified ownership reform,taking the three realization paths of diversified ownership reform as research objects,and relying on the ownership theory,modern property rights theory,principal-agent theory and human capital property rights theory,this paper attempts to discuss the following main issues:(1)After non-state capital entering state-owned enterprises,whether the introduction of marketoriented operation mechanism,the alleviation of state-owned enterprises’ empty ownership problem by non-state-owned shareholders with clear property rights,and the strengthening of external public media supervision,will have impacts on the internal control quality of stateowned enterprises? And what are the different effects of the equity diversity(breadth)and the balanced ownership structure(depth)formed by the participation of non-state-owned shareholders on the internal control quality of state-owned enterprises? Does the independence of non-state-owned shareholders affect the governance effects of non-state-owned shareholders?What impact does the change in the internal control quality of state-owned enterprises have on the realization of the policy goals of maintaining and increasing the value of state-owned assets?After non-state-owned shareholders gaining the control right of state-owned enterprises,will they improve the internal control quality of reformed enterprises based on governance motives,or will they have a negative impact on the internal control quality of reformed enterprises based on tunneling motives?(2)After state-owned capital entering non-state-owned enterprises,will their experience and advantages of state-owned shareholders in the construction of internal control systems,the supervisory function of state-owned shareholders,and the defensive motives of non-state-owned shareholders have a positive effect on the internal control quality of non-state-owned enterprises? Or will the political connection formed by state-owned shareholders’ participation,which has signal transmission and a resource effects,reduce the need for non-state-owned enterprises to transmit good signals to investors and obtain financing by improving the internal control system,and further produce negative influence on the internal control quality of non-state-owned enterprises? Will the culture blending degree of the diversified entities affect the playing of experience and advantages of state-owned shareholders in the construction of non-state-owned enterprises’ internal control systems? What impact does the change in the internal control quality of non-state-owned enterprises,in the diversified ownership reform,have on the realization of the policy goals of the normative and healthy development for the non-public economy?(3)It can realize the diversified ownership reform by implementing the employee stock ownership plan.And will it improve corporate internal control quality by shaping internal shareholders,which directly participate in corporate operation and management,and enhancing the synergy between agent and principal and the willingness and ability of employees to participate in supervision? Or does it increase the possibility that the subscribed objects carry out market value management at the cost of decreasing the quality of internal control? In the governance of corporate internal control quality,is there a "free-rider" phenomenon in the employee stock ownership plan,and what is the best ratio of participants? Will the design features of an employee stock ownership plan influence its effect on the quality of corporate internal control?To examine the problems above,this paper selects China’s A-share non-financial listed companies as initial research sample from 2009 to 2018,further manually identifies a more accurate experimental group of diversified ownership reform,and comprehensively uses multiple empirical methods such as multi-time-point double-difference model to investigate the influence of non-state-owned capital entering state-owned enterprises,state-owned capital entering non-state-owned enterprises and implementing employee stock ownership plan on the quality of corporate internal control and their mechanisms of action respectively.Firstly,the article examines the impact of non-state-owned capital entering state-owned enterprises in the process of diversified ownership reform,which realizes the diversity of stateowned enterprises’ equity nature and the balance of diversified ownership structure,on the quality of state-owned enterprises’ internal control,and further explores the specific mechanisms of action.The results show that:(1)When state-owned enterprises only attract multiple types of non-state-owned shareholders to participate in shares and form a diverse equity structure,the diversified ownership reform does not have a significant positive effect on corporate internal control quality.Otherwise,when state-owned capital and non-state-owned capital form a balanced ownership structure and create balancing effects,the diversified ownership reform can significantly improve corporate internal control quality;(2)The mechanism of non-state-owned capital improving the internal control quality of state-owned enterprises is mainly manifested in two aspects: internal motivation and external pressure.From the perspective of internal motivation,on the one hand,non-state-owned capital’s participation in state-owned enterprises creates “outsiders” with clear property rights,alleviates the “empty owner” problem of state-owned enterprises,strengthens the supervision and restraint of“insiders”,and reduces the first type of principal-agent conflict.Based on the motivation of asset preservation,non-state-owned shareholders participating in state-owned enterprises have the motivation to supervise the diligent and conscientious work of state-owned enterprise executives in the design and implementation of the internal control system,which improves the effectiveness of state-owned enterprises’ internal control.On the other hand,the participation of non-state-owned capital can enhance state-owned enterprises’ risk awareness of selfmanagement and self-responsibility for profits and losses.And by strengthening the marketoriented operation and assessment mechanism of state-owned enterprises,it improves managers’ sensitivity of compensation and performance for state-owned enterprises.In order to improve performance and avoid the risk of reverse compensation adjustment,executives are motivated to make more efforts to improve the internal control construction of state-owned enterprises.From the perspective of external pressure,in accordance with relevant policy requirements,in order to prevent the loss of state-owned assets,state-owned enterprises,which realize diversified ownership reform,need to strengthen information disclosure and enhance the role of public opinion supervision by external media.Under the pressure of public opinion supervision from external media,state-owned enterprises will strengthen the construction of internal control in order to reduce the probability of non-compliance being exposed;(3)In further research,this paper distinguishes the independence of non-state-owned shareholders.When there is a relationship between non-state-owned shareholders and state-owned shareholders,the governance role of non-state-owned shareholders on the internal control quality of state-owned enterprises will be significantly weakened,which means that the independence of non-state-owned shareholders is the premise for them to play the role of balances and governance in the diversified ownership reform of state-owned enterprises.From the perspective of the substitution effect of internal and external market mechanisms,the governance effect of non-state-owned shareholders on the internal control quality of stateowned enterprises is more significant in regions where the process of external marketization is slower.This shows that state-owned enterprises can form an effective market-oriented operation mechanism within the enterprise by attracting non-state-owned shareholders to participate in shares,which can form a substitution effect with the imperfect external market-oriented mechanism.(4)In the extended analysis,this paper further explores the economic consequences by improving the internal control quality of state-owned enterprises based on the targets of diversified ownership reform.It is found that the positive effect of non-state-owned capital participating in state-owned enterprises’ diversified ownership reform on the quality of internal control can significantly improve the corporate value.This shows that the improvement of stateowned enterprises’ internal control quality in diversified ownership reform is of great significance to the policy goal of maintaining and increasing the value of state-owned assets.(5)In addition,this paper empirically verifies that when shareholding ratio and voice of nonstate-owned shareholders are higher,the consequences are not always better.The participation of non-state-owned capital in state-owned enterprises alleviates the first type of agency conflict in state-owned enterprises.Non-state-owned shareholders have significant governance effects on the effectiveness of state-owned enterprises’ internal control by the motivation of asset preservation.However,when non-state-owned shareholders gain the control rights of stateowned enterprises,the second type of agency conflict will be obvious,and the opportunistic behaviors such as related-party transactions and major shareholders’ taking money will increase significantly.Motivated by tunneling,non-state-owned shareholders will grab private interests of control rights at the cost of damaging the internal control system of reform enterprises.Secondly,this article examines the impact of state-owned capital entering non-state-owned enterprises on the internal control quality of non-state-owned enterprises in the process of diversified ownership reform and its specific mechanism of action,and further discusses the influence of culture blending on state-owned shareholders’ governance effect.Then from the perspective of information disclosure quality and corporate value,it studies the economic consequences of improving non-state-owned enterprises’ internal control quality.The results show that:(1)The participation of state-owned capital in the diversified ownership reform of non-state-owned enterprises can significantly improve the internal control quality of non-stateowned enterprises,but this role has an obvious time lag effect.(2)Additionally,from the perspective of culture blending,it shows that when both parties are in the same region,belong to the same industry,and non-state-owned enterprise’ executives have a government working background,it can effectively alleviate the differences of cognition and behavior between these two parties,and enhance the governance role of state-owned shareholders on the internal control quality of non-state-owned enterprises.And it can reduce the time lag effect.This means that the similarities between the mixed entities in terms of region,industry and executive backgrounds can promote the advantages and experience of state-owned shareholders in the construction of internal control systems to integrate with the business model and management culture of non-state-owned enterprises,which can enable them to be better accepted by nonstate-owned enterprises and more effectively applied to non-state-owned enterprises;(3)As for the specific mechanism of action,the effects of state-owned capital participating in non-stateowned enterprises on the internal control quality of non-state-owned enterprises are mainly due to the supervisory function of state-owned shareholders and the defensive motivation of nonstate-owned shareholders.On the one hand,the government behind state-owned shareholders is both a tax collector and a market regulator.And the state-owned capitals’ participation in non-state-owned enterprises makes the government become a more direct regulator for nonstate-owned enterprises.To reduce the violations of non-state-owned enterprises,maintain the collection of government tax,and protect the stable development of the capital market and investors’ legitimate interests,state-owned shareholders have a strong supervision incentive to improve the internal control system of non-state-owned enterprises.On the other hand,internal control can play a defensive function.Non-state-owned shareholders can improve their internal control system based on the defensive motives,which can not only prevent the increasing risk of violation identification due to high political costs,but also regulate corporate operation activities and decision-making processes,and defend against predatory behavior by heterogeneous shareholders;(4)In the extended analysis,it is found that there is no significant difference in the governance effect of the state-owned capital shareholding ratio and discourse power on the internal control of non-state-owned enterprises.This is different from previous literatures on non-state-owned capital participating in the diversified ownership reform of stateowned enterprises.The reason may be that state-owned capital has a government background and is in an advantageous position in diversified ownership reform,with the discourse power beyond its equity share.Therefore,even if the shareholding ratio is comparatively small,it will still have an important impact on the internal governance of non-state-owned enterprises.(5)Based on the policy goals of diversified ownership reform,this paper further studies the economic consequences of improving non-state-owned enterprises’ internal control quality.The study finds that the improvement of non-state-owned enterprises’ internal control quality is helpful for improving the corporate value of non-state-owned enterprises,which indicates that the improvement of non-state-owned enterprises’ internal control quality has important value for achieving the policy goal of the standardized and healthy development for non-public economy.Finally,this paper investigates the impact of diversified ownership reform achieved by implementing employee stock ownership plans on corporate internal control quality and its mechanisms of action.And it examines the possible "free-rider" phenomenon in the employee stock ownership plans from the perspective of participants’ number.Furthermore,based on the specific characteristics of employee stock ownership plan,this paper examines the main effect from different perspectives.The results show that:(1)When implementing employee stock ownership plans,corporate internal control quality can be significantly improved,this is mainly due to the fact that the employee stock ownership plan can share the residual claims with the owners of human capital property right,which alleviates the first type of agency conflicts,enhances the synergy between principal and agent,and strengthens the bottom-up supervision effect of non-executive employees.And it can improve designers’ and executors’ enthusiasm and consciousness when designing and implementing corporate internal control system;(2)When the ratio of employees participating in stock ownership plan is close to 50%,the governance effect of employee stock ownership plan on corporate internal control quality will be reduced and generate a "free-rider" problem.(3)When the lock-up period expires,the restraining effect of employee stock ownership plan will be reduced.In order to obtain high returns in short term,the motivation of incentive object to manage stock market value will be enhanced,which in turn has a negative impact on corporate internal control quality.(4)Furthermore,it is found that the employee stock ownership plans,which have longer lock-up period,employees are the main subscription body and take use of leverage financing,have a more significant positive effect on corporate internal control quality. |
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