Study Of The Relationship Between Insider Ownership And Company Performance

According to the Principal-agent Theory, the important character of modern corporate system is the separate of enterprise property and management. In order to solve the agent problem, corporate government comes up and insider ownership is one of the most effective system and instrument. An effective ownership contract can make insiders' decision come with the shareholder in lower cost. However, like other economic behaviors, adjusting insider ownership and corporate performance to the optimal value needs cost.This paper discusses and examines the relation between insider ownership and corporate performance in the presence of adjustment cost and investigates how the adjustment costs are determined. First, we define the insder ownership, corporate performance, adjustment cost and analyse the equity incentive theory, and then we summarize the present literature research about the relationship between insider ownership and corporate performance and the influence factors of their adjustment costs respectively. Second, we construct variables, hypothesis and four regression models to analyse the relationship between insider ownership and corporate performance based on Chinese listed company. In model specification without adjustment cost, we find that insider ownership is significantly positively associated with corporate performance. But once we allow for adjustment cost, the relationship no longer exists. It means adjustment cost is exists and cannot be ignored. At last, we set two new regression models to analysis the influence factors of the adjustment speed of insider ownership and corporate performance, and then provided with some relevant conclusions.