Managerial Ownership, Board Structure And Firm Performance

This study investigates the interrelationships among managerial ownership and board structure, which are used for controlling problems between managers and shareholders, and further examines their effects on firm performance (ROA) using a sample of 190 Chinese listed firms during 2003-2006. Three characteristics—board composition, board leadership structure and board size—are used to capture the monitoring ability of the board. These board characteristics are assumed to be endogenously determined, together with managerial ownership. In order to find the effect of endogeneity, we use ordinary least square and two-stage least squares regression together. Empirical result indicates: Firstly, managerial ownership and the proportion of outside directors are negatively related to each other; and there is no significant relationship between managerial ownership and other two board characteristics—board leadership structure and board size. Secondly, firm performance is positively related to managerial ownership, which supports Convergence of Interest Hypothesis; the use of a dual leadership structure is negatively related to firm performance; and there is no significant relationship between the proportion of outside directors and firm performance. Thirdly, through the group analysis, we found in small-firm sample, managerial ownership is positively related to firm performance; while the proportion of outside directors and the use of a dual leadership structure are negatively related to firm performance. But we didn't find any significant relationship between governance mechanisms and firm performance in big-firm sample.