Study On Non-linear Relationship Between Managerial Stock Ownership And Corporate Performance

Starting from the middle of 20th century, new incentive approaches by according managers appropriate stock ownership to deal with the agency problem had been taken practice out of theoretic suggestions and had been widely taken throughout the western countries represented by USA. These approaches solved the agency problem and promoted the development of the companies and the economy. But there also came relevant problems and wrecked the economic system. After the split-share reform in China, the stock ownership incentives of listed companies are on the rise. With the presence of more policies and more experienced incentive projects in this region, it is expected that the increase on number of listed companies adopting managerial stock ownership will accelerate. This paper tries to look into the relationship between the management stock ownership and corporate performance, and to provide valuable advices on the operating and developing of ownership incentives in China.The thesis fist reviewed the relevant researches at home and abroad and pointed out the three main problems of the huge gaps among these researches. Then it reviewed the three basic theories including Principle-agent Theory, Human Capital Theory and X-efficiency Theory. After introducing the main hypotheses of the effects of managerial stock ownership on the corporation performance, we focused on the Convergence- of-interests Hypothesis and the Managerial Entrenchment Hypothesis and conducted theoretical analyses. The results presented a non-linear relation between the managerial ownership and corporate performance and the trend depends on the specific function forms and the parameter sets. The thesis then took the influence of managerial ownership on the corporate performance as the result of the influences on the specific managerial behaviors, and tried to divide the Convergence-of-interests Hypothesis and the Entrenchment Hypothesis into elements, considering our country's conditions. The results suggested that the relationship appeared to be similar with a triple non-linear relation, after analyzing the four main elements of the effect, which are Influence of Takeover Market Pressure, Influence of Excessive In-office Expense, Influence of Deceiving Tendency and Influence of Working-hard Tendency. Thus we adopted the triple non-linear hypothesis on the relationship of stock ownership and performance.The thesis then conducted an empirical study on the subject. The data was from 414 listed companies of Shanghai and Shenzhen Markets during 1999 and 2005. Results confirmed the similarity of Chinese companies and the foreign companies on the relationship of managerial ownership and performance, which presented an N shaped triple relation. In Chinese companies now, managerial ownership and performance are moving in the same direction, so companies should increase the managerial ownership to promote the corporation performance. Considering the importance of the State-owned enterprises (SOEs, State-controlled enterprises precisely), we categorized the samples into SOEs and NSOEs (Non-state-owned enterprises). Regression results confirmed that the two categories of samples still satisfied the triple relation, while SOEs are having a lower optimal managerial ownership level, thus they are relatively restricted comparing NSOEs to promote their performance by increasing the managerial ownership. SOEs are facing a more serious corporate governance problem and they are still in need of wider and deeper reforms.