An Empirical Research On The Relationship Between Corporate Power Structure And Firm Performance

In the fierce struggle over control of GOME in 2010, two opposite parties are large shareholder holding the controlling share relatively and the management, but those who have the most to lose are investors. Similarly, corporate governance failed events like executives abusing power for personal gains and tunneling from large shareholders often occur. All the time, the academia and operation circle pay close attention to how to perfect corporate governance, prevent from damaging the interests of companies, and improve firm performance. Corporate governance issues derive from separation of ownership and management rights, or the principal-agent problem from separation of two rights. Corporate shareholders empower his agents to manage the company, but when benefit goal of senior managers is inconsistent with that of the shareholders, senior managers tend to damage the interests of shareholders and company for personal gains. Early corporate governance researches have put focus on the principal-agent problem between managers and shareholders. Later, countries with concentrated ownership bring on another agent problem between the large shareholders and minority shareholders. In concentrated ownership structure, shareholders have enough incentives and ability to monitor the management, but tend to exploit minority shareholders and hollow out the enterprise. Based on the reality in China, there are two types of principal-agent problem in the enterprises, that is the principal-agent problem between managers and shareholders, and another agent problem between the large shareholders and minority shareholders.In order to solve the agent problems, an effective corporate governance structure should be established. This paper holds that corporate governance structure is not only the means of shareholders supervising the behaviors of the managers, but also the instrument of preventing benefits expropriation by large shareholders. Corporate governance structure is a kind of organization structure made up of shareholder meetings, board of directors, board of supervisors, managers and so on. And it is also a kind of institution coordinating the interests among different interest groups. In other words, corporate governance structure is the distribution of internal power of enterprise. Therefore, in order to establish an effective corporate governance structure and improve firm performance, the rational allocation of the power structure in the enterprise is necessary. The power structure among different production factors or bargaining determines the allocation of control rights of a company, and then the behavior of members of the enterprise like the input of production factors will be affected, finally enterprise profit which means firm performance will be affected.This paper selects date of all Chinese listed companies of both Shanghai and Shenzhen Stock Exchange from 2009 to 2014, empirically investigates the relationship between corporate power structure among the members of the enterprise and firm performance. Specifically, different power structures constituted by different power subjects under different ownership structures can produce different effects of corporate governance which have different influences on the performance of the enterprise. So based on ownership concentration which means the proportion of the largest shareholder, this paper divides the data into three groups: diffuse ownership structure, relatively concentrated ownership structure, and concentrated ownership structure, then separately analyses the relationship between corporate power structure under different power subjects and firm performance. The empirical results are as follows: When the ownership structure is diffuse, the increase of power of the large shareholders will restrict the management and weaken the entrenchment effect of management, so the power of shareholders has a positive effect on firm performance; when the ownership structure is relatively concentrated, managers and shareholders restrict each other and firm performance can be best when the restraint reaches a certain level; when the ownership structure is concentrated, the increase of power of minority shareholders will restrict large shareholders and weaken the occupying effect of large shareholders, so the power of minority shareholders has a positive effect on firm performance. Finally, the study uses cash dividend payout ratio reflecting the inner-enterprise power structure to seek the best power structure for the performance of the firm. And the result indicates that cash dividend payout ratio and firm performance are inverted U-shaped relationship, that is, the more balanced the power structure is, the better the firm performance is. In conclusion, the inner-enterprise power structure determines firm performance and the more balanced the power structure is, the better the firm performance is. In order to pursue high performance, a balanced power structure between business executives and shareholders should be established. If one side holds excessive power, the enterprise development will be damaged. According to the empirical conclusions, this paper provides evidence for the stakeholder theory of corporate governance and provides some policy suggestions for the reform of ownership structure of listed companies in China.