Abstract
The distinctive political-economic setups of emerging economies engender special corporate governance issues that warrant added attention to the broader institutional environments. Using a unique provincial firm-level dataset, this paper investigates how corporate control natures, ownership concentration, and provincial differences in government quality and financial development jointly affect the value of Chinese listed companies. Firstly, central government control is generally associated with higher Tobin’s Q, while a negative premium is found for firms ultimately controlled by local governments. It then uses alternative concentration measures and an instrumental variable approach to confirm a nonlinear relationship between ownership concentration and Tobin’s Q, implying that firm value first decreases and then increases as blockholders own more shares. Further analysis reveals that government quality has a significant, positive moderating effect on the relationship between different corporate controllers and firm value, while the value implication of ownership concentration also depends on regional financial development.
Highlights
Corporate governance (CG) researchers often attribute first-order importance to investor protection in destemming firm performance
This paper examines empirically the impacts on Chinese firm value of particular ownership characteristics and the relevant institutional factors of government quality and financial development
The positive role of central government corporate controllers contrasts significantly with that of their local peers, showing the divergent policy imperatives and monitoring capacities under fiscal and administrative decentralization. This challenges the commonly-held view of one monolithic state uniformly presiding over Chinese corporate governance. It confirms a U-shaped effect of ownership concentration on firm value using alternative concentration measures
Summary
Corporate governance (CG) researchers often attribute first-order importance to investor protection in destemming firm performance. Disparities in legal systems and enforcement effects are taken as a key institutional factor whether it is to understand the diversity of national CG models (Mintz, 2005), or the causal links between particular CG practices and economic outcomes (Hearan et al, 2017). Policy prescriptions enshrined in codes of ‘best’ practices are mostly mediated by political and economic realities and achieve limited effects (Ahrens et al, 2011). This is so in those emerging markets where judicial inefficiency and government intervention render regulatory enforcement especially problematic. The relations between CG practices and performance outcomes warrant added attention to other background institutions (Filatotchev et al, 2013)
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