Governance of Non-state Shareholders and Financial Stability of State-owned Capital: An Analysis on Stock Price Crash Risk

Abstract

How to better utilize market mechanisms to ensure the stability of Chinese financial system and prevent financial risks under the new development pattern of Chinese expanding financial opening to the outside world has become an extremely important research topic at the national governance level. In the context of the mixed ownership reform, non-state shareholders can better participate in the governance of state-owned enterprises and alleviate the principal-agent problem, thereby reducing the risk of state-owned enterprise stock price crash risk and maintaining the financial stability of state-owned capital.On this foundation, our paper uses the data of state-owned listed companies from 2008 to 2015 as a sample, and manually sorts out the data on the nature of the top ten shareholders, shareholding ratios, and directors appointed by shareholders in the annual report, so as to study the impact of the governance of non-state shareholders on stock price crash risk among state-owned enterprises from the dimensions of equity balance and high-level governance. It finds that it is difficult for non-state shareholders to play a governance role only by holding equity. And only when non-state shareholders appoint directors to participate in the high-level governance of state-owned enterprises, can they effectively alleviate agency problems and improve information transparency, thereby reducing the stock price crash risk of state-owned enterprises. Further research shows that the aforementioned effect is more prominent in state-owned enterprises with low internal management power and competitive industries.Our paper mainly has the following two policy recommendations. On the one hand, it supports the policy spillover effect of state-owned enterprise mixed ownership reform in maintaining the security and stability of Chinese financial market. That is, non-state shareholders appointing directors to state-owned enterprises can reduce the stock price crash risk of state-owned enterprises and maintain the stability of their market value without losing the controlling rights of state-owned shareholders or causing the loss of state-owned assets. Thus, the national leader can pay more attention to the supporting guarantee system for non-state shareholders to appoint directors to state-owned enterprises in the future mixed ownership reform.On the other hand, this paper finds a path for how to effectively prevent and resolve financial risks. Under the realistic environment where the stock market is an important part of Chinese financial system and state-owned listed companies are the mainstay of Chinese stock market, it is possible to effectively ensure that non-state shareholders who are more concerned about the stock price of state-owned enterprises nominate and appoint directors to state-owned listed companies. This will not only help to alleviate the stock price crash risk of state-owned enterprises and maintain the stability of the market value of state-owned listed companies, but also help to maintain the stability and security of Chinese stock market and even the entire financial system.