Cross-owners as monitors: more supervisory or distracted? Evidence from China

Abstract

ABSTRACT In recent decades, cross-ownership becomes a rapidly growing phenomenon in capital markets across various countries. However, there remains an absence of consensus regarding the efficacy of cross-shareholders in monitoring within the realm of corporate governance. This study delves into this quandary by employing regression analysis on data spanning the years 2007–2018 from Chinese listed firms. Our findings reveal that cross-ownership significantly mitigates agency costs, a conclusion robustly supported through a battery of tests. Key mechanisms driving this phenomenon include information advantage and governance experience, facilitated through channels such as increased shareholding and director appointments. Notably, this positive effect is more pronounced in non-state firms, firms with less concentrated ownership, greater analyst attention, and less trustworthy auditors. In sum, our results underscore the constructive role played by cross-owners in fortifying corporate governance structures.