Group Governance, Agency Cost And Performance Of Listed Companies

With the continuous development of China’s economy, Business Groups， whichoccupying the core status of the economy, have attracted more and more attention. Nomatter in central enterprises, state-owned enterprises, industries and enterprisesrelated to national economic lifelines, listed companies, or high-quality privateenterprises, Business Groups always occupy the absolute position. Indeed, with thecompany continue to grow and develop, the monomer company developing towardsgroups has become an inevitable trend. So Business Groups have strongly boostChina’s economic development, and played a significant role in the deepening ofreform in the future.Listed companies as transparency and openness Business Groups’ forefront, itsdevelopment can reflect the Groups’ operations, performance and governance.Accordingly, the Groups’ strategy and governance factors also have a profoundimpact to the performance of listed companies. Especially when the whole economicenvironment is weak, good governance is quite precious. It is precisely because theassociation between the Groups and listed companies is noteworthy in reality, so thereare multifaceted research literatures in theory to study the performance of companiessubordinating to groups, the association between institutional environment and theperformance of Groups and subsidiary enterprises, and the difference of strategybetween subsidiary enterprises and non-subsidiary enterprises. But the large sampleresearch about the good-quality governance environment can effectively reduceagency costs, thus contribute to a substantial improvement in performance is still notcomprehensive enough. Therefore, this paper using hand-collected data of BusinessGroups and their holding listed companies selects the relevant data of251enterprisegroups and377subsidiary listed companies and proposes two key assumptions. Afterscreening, there is1661sample date from2007to2011.The first assumption considers the relationship between governance environmentof, as well as between, the groups and listed companies and listed companies’performance. The second considers the relationship between the former and listedcompanies’ agency costs. This paper uses ROE, ROA and Tobin’s Q to measureperformance, and management expense ratio, the proportion of other receivables in total assets and executive compensation to measure the agency cost. The governanceenvironment contains the senior managers’ positions in the Group and listedcompanies、Controlling Shareholders and the status of listed companies in thebusiness groups. According to a large sample empirical test, this paper concludes thegovernance environment has positive impact on performance, and good governancecan effectively promote reducing agency costs, thus enhance the performance oflisted companies. Through research and analysis of this paper, we propose somerelevant suggestions in order to contribute to the research about China’ s BusinessGroups: regulating the behavior of major shareholders can promote the Group’sgovernance performance improvement; innovating optimal allocation of managementbetween business groups and listed companies can reduce the agency costs of listedcompanies; emphasizing the status of listed companies within the Groups and puttinghigh-quality assets of business groups in the listed companies subordinating to themso that can enhance the core values of listed companies; improving the incentiveeffects of executive compensation in order to promote the optimization of executivemanagement behaviors.