The Impact Of Large Shareholding On R & D Investment And Firm Performance

Firstly, we discuss the non-linear relationship between R&D investment and firm performance. Secondly, we discuss the impact of the largest shareholder. Finally, further discussion to distinguish the different effects from the different range of ownership concentration.The main characteristics of R&D activities of high investment. High risk, high return, high cycle, which makes the information asymmetry stronger, and worsen the agency problems. If the investment fails, it will result in a waste of resources and loss of profits.The existing study of relationship between R&D investment and corporate performance are inconsistent. Some literature suggests that the relationship between R&D investment and corporate performance appears U-Shaped,while others suggests inverted U-Shaped. Thus, we believe that there exist different relationship between R&D investment and corporate performance in defferent range of R&D investment.Meanwhile The principal- agent theory aims to analyze the ecourage under asymmetric informantion problem. Bassed on the internal corporate governance, the largest shareholders try to build the structure of’shareholders’ meeting - board of directors-managers’in order to ensure the corporate residual claims and residual control rights equal. Corporate governance mechanism help reduce the agency problem and help supervise the tendency of managers to persue ineffective straregies.Data on 2062 Chinese firms over 5 years show a consistent horizontal S-shaped relationship between R&D investment and corporate performance. The proportion of the largest shareholder affect the relationship between the presence of R&D investment and firm performance, and this affection differs in different variation. Therefore, the R&D investment intensity should be controlled within the rising phase. Based on the range of R&D intensity, with appropriate ownership concentration, rational use of incentive effect and the defense effect of the largest shareholder by sharing risk and interests to improve the R&D investment efficiency, at the same time, improve the ownership structure and improve the management efficiency from large shareholders.