Vertical Interlocked Executives? Institutional Investor Shareholdings And Value Creation Of Intellectual Capital

The report of the Nineteenth National Congress pointed out that China's economy has changed from high-speed to high-quality growth.Intellectual capital(IC)has gradually replaced material capital as the pillar of innovation and long-term advantage.IC is the knowledge and ability that a firm possesses or controls to create value continuously.However,due to its characteristics of large investment,long cycle and uncertainty of return in management activities,managers have the motivation to reduce the investment of IC.Relevant studies have found that good corporate governance mechanisms,such as directors membership governance,executive incentives and equity governance can alleviate or inhibit the agency problems in IC activities,but at the same time,it is found that family holding,majority shareholders' shareholding of listed companies have a negative impact on the value creation of IC.As the core members of decision-making team,the chairman and CEO play a key role in IC strategic decision-making.Vertical interlocked executives(the chairman and CEO of listed companies also serve in large shareholder)as a controlling methods of large shareholders,is an important field of corporate governance research.Meanwhile,as external shareholders,institutional investors can use the resource information advantages to assist listed firms in the management of IC.Therefore,it is necessary to explore the economic consequences of vertical interlocked executives from the perspective of IC value creation with comprehensively considering internal and external governance mechanisms.This article based on the agency theory,IC theory and knowledge governance theory,using VAIC method to measure the value creation efficiency of IC.In this paper,we use fixed-effect regression model to test assumptions with GEM listed companies from 2009 to 2016.The results show that the value creation efficiency of IC is significantly lower in firms with vertical interlocked executives,while institutional investors' shareholding can weaken this negative impact.Further analysis shows that this negative effect mainly exists when the vertical interlocked executives hold core positions in the large shareholders,and the vertical interlocked executives also have a negative impact on innovation performance.It shows that the vertical interlocked executives do not play their due role in knowledge governance,but become a tool for large shareholders to encroach on IC gains.Therefore,firms need to take professional experience and IC management ability as an important standard when selecting interlocked executives,actively introduce external supervision force including institutional investors,and use formal and informal knowledge governance mechanisms to effectively manage IC.