The Influencesof Founder's Shareholding On Firm Performance

As one significant part of China's socialist economic system,private enterprise has received increasingly more attention from theorists and practitioners.The gradually deeper researches related with private enterprises have generated a series of new research subjects,one of which is how founders' management influences private enterprises.The links between private enterprises and founders are much closer and more complex in China than those in other countries.On the one hand,at the early-stage development of a private enterprise,the firm-specific knowledge and skills,industry experience,social relations and political relations established with the government that possessed by founders are the key elements contributing to the enterprise's success.On the other,after having achieved certain growth in its scale,the enterprise is likely to face a new management environment different from before,and those aforementioned advantages possessed by founders could fail to meet the requirements of the enterprise's development,or worse even,refrain its development.Then,the question comes,what is the proper founder's management?The existent researches on founders have yet to come to a consistent conclusion,among which some scholars argued that founders' management could benefit the enterprise,while others not.There are two significant ways through which founders can exert an influence on the enterprise,one is to grab key management posts,another to hold a certain share of stocks.The existent literatures manifest the fact that most of scholars focused their research on founder management rather than on founders'shareholdings.As one of founder's important external characteristics,founders'shareholdings show the extent of interest involved in the enterprises and of control over the enterprise,further exert an influence on firm performance.Therefore,the analysis of the influence mechanisms and paths of founders' shareholdings is beneficial to the supplement of founder researches,as well as to make clear the role that founders play.Based on Control Theory,using a sample of 700 A-share listed companies from2005-2012,my paper focuses on the influence of founders on enterprises from founders'shareholdings perspective.The main research questions are as follows:First,if that founders increase sharehodings will generate interest-alignment effect or entrenchment effect?Second,will it facilitate interest-alignment effect or entrenchment effect when founders take management post as well as shareholdings.Third,within the frame of corporate governance,how do founders who take management post as well as shareholdings exert influences on enterprises.The results of the paper show that,founders' shareholdings has with firm performance a positively linear relationship instead of U-shape or curvilinear relationship,which suggests the interest-alignment effect generated by shareholding exceeds the entrenchment effect.Especially,the interest-alignment effect will be strengthened,when founders also take a management post,which supports the view that,as loyal stewards of the enterprises,founding managers will facilitate the interest-alignment effect.However,when taking corporate governance into considerat--ion,the positive effect will be weakened.it is high likely that the costs of founding managers' shareholdings will exceed the benefits with the improvement of corporate governance.The research not just confirms the importance of founders to enterprises,but also points out the problems caused by founder management.As China's market system and corporate governance get improved gradually,the disadvantages caused by founder management will be on rise.Founders are supposed to dilute their control over the enterprises,for instance,staying at Board while appointing professional managers,to promote enterprises' development,as well as to guarantee founders' consistent influence on enterprises.