Relationship Between Agricultural Structure And Corporate Governance Performance

Because of the highly importance of agriculture in the economic development process in China, agricultural listed company is a very important subject as the representative of the agricultural economy. Improvements of the performance of agricultural listed company can activate the entire agricultural industry chain and increase the income of farmers. So the paper chooses thirty-five agriculture listed A-share companies as the research object. Based on the cross section data of these agriculture listed companies in Shanghai and Shenzhen stock exchange over the period of2007-2010, an empirical analysis is conducted on the relationship between corporate governance and enterprise performance. It is very essential and important to do this research for two reasons. Firstly, the current academic researches on the relationships between corporate governance and enterprise performance are mostly focus on the relationship between one or several corporate governance structure and enterprise performance. Only some researches are conducted from the overall perspective. Secondly, most researches do not consider the effects of endogeneity of explanatory variables. In this research, we construct a overall index of corporate governance (CI) of these thirty five agriculture companies and examine the relation between the index (CI) and enterprise performance from the overall perspective.Most researches using two-stage least squares (2SLS) are done in this way. They use ordinary least square (OLS) to examine the relationship between corporate governance and enterprise performance without considering the endogeneity of explanatory variables firstly. An endogenous test of explanatory variables is conducted later. If we reject the null hypothesis that the explanatory variable is exogenous, two stage least squares is used to analyze the relationship between corporate governance and enterprise performance. So this research is done by the same way.A descriptive statistics analysis of corporate governance and enterprise performance is conducted to understand the current situation of corporate governance and enterprise performance of the thirty five agriculture listed companies. We choose eleven variables related to ownership structure, board characteristics and management incentive and use the factor analysis to construct a overall index of corporate governance (CI) for the thirty five companies.We choose debt-to-assets ratio (DBR), square of largest shareholder equity ratio (HI) and the region of the company (REGION) as the control variables. Earning per share (EPS) is chose as enterprise performance variable. After putting three basic assumptions on their relationships, we construct a model between ESP, CI, DBR, HI and REGION. Ordinary least square (OLS) is used for the model first. Hausman test is used to test the endogeneity of explanatory variable later. We reject the null hypothesis that GI is exogenous, so we use two-stage least square (2SLS) for the model with the managerial ownership variable PER as the instrument variable. We find several conclusions from the research. First, there is a positive relationship between corporate governance and enterprise performance regardless of considering the effects of endogeneity. Second, after considering the effects of endogeneity, the significance of explanatory variables and the coefficients change a lot. The coefficients of CI, DBR, HI and REGION change from0.036,0.273,0.755,0.164to0.048,0.289,0.738,0.155. We conclude that positive relationship between corporate governance and enterprise perfonnance is1.2percent larger after the effects of endogeneity. Thirdly, there is also a positive relationship between debt-to-assets and enterprise performance regardless of considering the effects of endogeneity. When the debt-to-assets is too high, the creditors will press the management of the company and take more time and efforts to supervise the operation and management of the company. The principal-agent problem will be less serious and the performance will be much better. Fourthly, the Earning per share and square of largest shareholder equity ratio are relevant towards the same direction. That is because shareholders take less care to supervise the company when they only hold small amount of stock. That means the lager the square of largest shareholder equity ratio, the better the enterprise perfonnance.