Multiple Large Shareholders Research Articles

Multiple large shareholders and pay-performance sensitivity: Evidence from China

This study investigates whether and how multiple large shareholders affect pay-performance sensitivity. Our findings suggest that multiple large shareholders can enhance pay-performance sensitivity by improving the efficacy of compensation committees and reducing inefficient investments. Further analysis reveals that this positive governance effect is more pronounced in firms with more severe agency problems, weaker external governance mechanisms, and higher accounting comparability. We also find that the impact of multiple large shareholders on pay-performance sensitivity is more significant in state-owned enterprises, where corporate governance is often deficient due to government’ multifaceted objectives and limited oversight of managers. Overall, this study contributes to existing literature by enriching the research on ownership structure and pay-performance sensitivity, and offering new insights into the governance dynamics associated with multiple large shareholders within the context of compensation contracting.

Multiple Large Shareholders and ESG Performance: Evidence from Shareholder Friction

Sustainable corporate governance increasingly influences corporate strategy considerations. Effective governance ensures organizational sustainability, with ESG being a crucial component. Large shareholders, as direct stakeholders, have a key role in developing and implementing corporate ESG strategies. Using data on Chinese listed firms over the 2011–2022 period, we find that multiple large shareholders (MLS) depress company ESG performance, suggesting that MLS may lead to friction and high coordination costs. Interestingly, stronger controlling shareholders mitigate this negative impact, particularly when they are state-owned. Our analysis shows that relatively equal power among MLS exacerbates friction, resulting in unstable executive teams and higher internal pay gaps, which lower governance (G) and social (S) scores. However, the presence of foreign and institutional investors among the large shareholders can alleviate these issues. The negative effect of MLS on ESG is significant in firms operating in clean industries, those with low analyst attention, or those not part of the “Stock Connect Scheme”. This study highlights the drawbacks of MLS in sustainable corporate governance from an ESG perspective.

Multiple large shareholders and analyst activities

This paper examines whether analysts' decisions to follow or visit a firm are affected by a specific governance structure—multiple large shareholders (MLS). Using a sample of 3369 Chinese firms listed on the Shanghai and Shenzhen stock markets, we compare analyst activities for MLS firms with those for single-large-shareholder firms and find that analysts are more willing to cover/visit firms with MLS. We then empirically identify that MLS affects analyst activities through corporate governance, information environment, and firm's value, supporting the monitoring role of other blockholders on the controlling shareholder. Further analyses show that the impact of MLS on analyst activities is more prominent when other large shareholders have more power relative to the controlling shareholder, when MLS represent different types of ownership (state and nonstate), and when at least one is foreign. We also find that firms with MLS, by attracting analyst following or site visits, tend to have more accurate forecasts and more informative analyst reports. Our results imply that analysts not only view MLS as better governance but also acquire more information from firms with MLS.

Use of comment letters for mergers and acquisitions in a setting with weak investor protection: The Chinese experience

We adopt a principal–principal perspective to examine whether comment letters for mergers and acquisitions (M&A) protect shareholders, particularly minority shareholders, of acquiring firms in China, where investor protection is weak. This public enforcement tool has several features: (i) regulators provide detailed comments on various matters, (ii) various stakeholders are called upon to respond, and (iii) failure to adequately address the comments to the satisfaction of regulators results in M&A applications being rejected. Our main results show that M&A comment letters affect the outcome of M&A transactions by reducing acquisition premium and improving the fulfillment of performance commitment. Furthermore, this effect is more pronounced when the principal–principal conflict is more severe, as indicated by a greater divergence between cash flow rights and control rights, along with weaker monitoring by multiple large shareholders. Our results suggest that M&A comment letters, if used appropriately, effectively enhance investor protection in less developed economies. We contribute to the literature by providing new evidence of the effects of M&A comment letters in settings with weak investor protection.

Multiple large shareholders and audit fees: Demand‐side evidence from China

AbstractThis paper provides evidence on the role of multiple large shareholders (MLSs) in the determination of audit pricing from a new demand‐side perspective, rather than the typical supply‐side perspective. We find that for Chinese A‐share listed firms, the presence of MLS is associated with significantly higher audit fees. The results are robust after we address endogeneity concerns and use auditor choice as an alternative proxy to capture demand for auditing. Further tests show that audit fees increase with the number and relative power of noncontrolling large shareholders. The positive impact of MLS on audit fees is more pronounced for state‐owned enterprises (SOE) than in family‐owned enterprises. Moreover, this positive impact of MLS is more pronounced for SOEs with foreign blockholders and non‐SOEs with independent institutional blockholders. This positive impact is also more pronounced for firms with higher information asymmetry, severe agency problems and higher litigation risk. Overall, our results provide consistent evidence that firms with MLS are likely to demand high‐quality auditing, leading to higher audit fees.

Controlling shareholders, their incentives and corporate governance ratings

PurposeThis study aims to facilitate the development of a better understanding of how controlling shareholders respond to the mandatory system of corporate governance rating (CGR) for all firms listed on Taiwanese stock markets and the incentives of controllers to apply corporate governance best practices.Design/methodology/approachUsing CGR data for all Taiwanese listed firms from 2014 to 2020, this study examines whether controlling shareholders determine a firm’s CGR.FindingsSingle-family-controlled firms have the lowest CGRs, and management-controlled firms have the highest ratings. Blockholder-controlled firms are more likely to have top 20% ratings than single-family-controlled firms and bottom 20% ratings than single-family and management-controlled firms. All three categories of firms have unfavorable (favorable) ratings because of substitute governance effects (signaling effects).Originality/valueManagement-controlled firms, in which agency problems refer to principal-agent conflicts, are more likely to have good ratings than single-family controlled firms, in which agency problems refer to principal-principal conflicts. Blockholder-controlled firms have extreme ratings, suggesting that multiple large shareholders develop corporate governance practices consistent with their best interests to increase firm value or expropriate wealth. Low cash flow rights and high control-ownership divergence lead firms to adopt additional governance arrangement(s) to make shareholders trust firms with capital and signal to shareholders that they can trust them with their capital.

Multiple large shareholders and asset-liability maturity mismatches

This paper examines the effect of multiple large share ownership on a firm's asset-liability maturity mismatch. Using a sample of Chinese A-share listed companies over the 2007–2022 period, the results of this study suggest that multiple large share ownership is negatively associated with asset-liability maturity mismatches. These results still hold after several endogeneity and sample selection concerns are addressed. Furthermore, the results of mechanism study suggest that multiple large share ownership can mitigate asset-liability maturity mismatches by reducing default risks of firms, firm-level financial constraints, and related-party transactions. These findings provide insights into how ownership structure affects corporate financial decisions.

Controlling Function of Corporate Governance to The Relevance of Accounting Earnings Information

The relevance of accounting earnings information is needed to help users of financial statements to make a decision. This research intends to expand previous empirical studies by examining more comprehensive corporate governance variables, which are the proportion of audit committees and commissioners, the role of financial accounting experts in the audit committee, and ownership structure to increase the relevance of accounting earnings information. The aim of this research is to examine whether controlling function held by the company in order to perform good corporate governance can affect to the informativeness of accounting earnings in Indonesia. This research method uses Pooled Least Square (PLS) with total sample 327 firm-year observations of Indonesian public companies from 2017 to 2019. The result shows that the existence of effective controling function by multiple large shareholder, accounting expert, audit committee, and board size can increase the relevance of earnings information that rely on financial statement. This research findings could be as an additional literature in financial accounting and corporate governance area, and also for practitioners in manufacturing company in Indonesia that if a firm has good controlling function, it can provide relevant information about earnings to shareholders.

Multiple large shareholders, earnings management, and operating risk: Empirical evidence from China

This study uses the annual financial data of Chinese A-share listed firms from 2010 to 2020 to investigate the relationship between multiple large shareholders (MLS) and earnings management (EM). After analyzing the samples using the Ordinary Least Squares (OLS) model and endogenous switching regression (ESR) model, the empirical results show that the presence of MLS can increase corporate EM activities and the MLS have a significantly positive effect on EM in both the treatment and control groups. In addition, this conclusion still holds after conducting multiple robustness tests. The cross-section analysis shows that the external audit supervision quality, institutional shareholders, and the uncertainty of the external economic environment have significant impacts on the baseline model results. Lastly, mediation effect analysis shows that the presence of MLS increases the corporate operating risk through EM activities. The conclusions of this paper are critical for policymakers to supervise China’s capital market, improve the level of corporate governance of China’s listed firms, and further promote reform of ownership structure.

Multiple Large Shareholders, Identity, and Corporate Tax Avoidance

AbstractIn recent years, the variation in firms' tax-avoidance behavior has attracted a lot of attention, both theoretically and empirically. This study investigates the governance role of multiple large shareholders in firms' tax-avoidance behavior, using a sample of Chinese state-controlled listed firms over the period 2004–2016. We find that the ownership stake of a firm's largest shareholder is negatively associated with tax avoidance among state-controlled firms. Second, other large non-state shareholders negatively affect tax avoidance of state-controlled firms. The former effect is particularly strong when the local government is the controlling shareholder. Finally, differences in institutional quality influence the largest shareholder's tendency to engage in tax avoidance in state-controlled firms. For state-controlled firms, a better institutional environment elicits more tax avoidance and thus curtails minority-investor expropriation.

Manager myopia and green technology innovation

PurposeWith the growing concern of various sectors of society regarding environmental issues and the promotion of sustainable development, green technology innovation is generally considered to be conducive to the long-term development of enterprises. However, because of the existence of agency problems, managers may have shortsighted behaviors. Then how will managers' shortsighted behaviors affect enterprises' green technology innovation?Design/methodology/approachThis paper uses machine learning-based text analysis methods to construct a manager myopia index based on the data from A-share listed companies on the Shanghai and Shenzhen Stock Exchanges from 2015 to 2020. We examine the impact of manager myopia on green technology innovation in companies.FindingsOur study finds that manager myopia significantly inhibits green technology innovation in companies. However, when multiple large shareholders coexist and the proportion of institutional investors' holdings is high, it can alleviate the inhibitory effect of manager myopia on green innovation. Heterogeneity tests show that the impact of manager myopia on green technology innovation is relatively significant in non-state-owned and manufacturing companies, as well as in the electricity industry. Robustness tests demonstrate that our conclusions remain valid after using propensity score matching to eliminate endogeneity problems.Originality/valueFrom the perspective of corporate governance, this paper incorporates managers' shortsightedness, multiple large shareholders and institutional investors' shareholding ratios into the same logical framework, analyzes their internal mechanisms, helps improve corporate governance, enhances green innovation capabilities and has strong implications for the implementation of national innovation-driven development strategies and the achievement of “carbon peak” and “carbon neutrality” targets.

Multiple large shareholders and M&A quality: evidence from China

ABSTRACT This study investigates the influence of the presence of multiple large shareholders (MLS) on the quality of mergers and acquisitions (M&A). Using data from the Chinese market, we find that the presence of MLS in acquiring firms is associated with a higher level of goodwill impairment in the three-year period following the completion of an M&A transaction, relative to firms devoid of such shareholder structures. The further analysis suggests that the identity of these shareholders is crucial; specifically, when the second-largest shareholder is identical to the controlling shareholder, the adverse effects on goodwill valuation are more significant. This relationship is mitigated when the identities of the controlling and the second-largest shareholders differ. The impact is particularly noticeable in transactions involving commitment performance contracts, related party transactions, and in sectors characterized by high goodwill valuations. This study contributes to the literature on the economic outcomes associated with MLS structures in China, a context marked by the prevalence of such ownership arrangements and limited minority shareholder protections.

Multiple Large Shareholders, Investment Efficiency and Corporate Tax Avoidance: Evidence from China

Multiple Large Shareholders, Investment Efficiency and Corporate Tax Avoidance: Evidence from China

Multiple large shareholders and cost stickiness: evidence from China

Using a sample of Chinese listed firms from 2001 to 2017, this study investigates the impact of multiple large shareholders (MLS) on cost stickiness from the agency costs perspective. We find a positive association between MLS and cost stickiness after controlling for various determinants of cost stickiness. The results of additional analyses suggest that coordination costs among large shareholders make it challenging to monitor managers, and stronger protection of minority shareholders helps to eliminate the effect of MLS on cost stickiness. This paper extends our understanding of the ‘dark side’ of MLS and complements existing research investigating the determinants of cost stickiness from the ownership structure perspective.

Multiple large shareholders, agency problem, and firm innovation

AbstractThis paper, in the context of agency problem, examines the impacts of multiple large shareholders on firm innovation. A dataset of non‐financial listed firms in China was established from 2007 to 2019. Innovation is divided into innovative quantity and innovative quality. The results demonstrate that multiple large shareholders can trigger innovative quantity and improve innovative quality. Multiple large shareholders restrict excessive earnings management and optimize pay gap by top manager to support innovation. It also finds that multiple large shareholders have a positive impact on firm's innovation through reducing share pledge and tunneling action of controlling shareholders. Moreover, it is also confirmed that better information environment and legal framework contribute to the positive effect of multiple large shareholders in corporate governance, along with firm innovation superior.

Multiple large shareholders and abnormal stock trading halts

ABSTRACT Using a sample of Chinese A-share listed firms on Shanghai and Shenzhen stock exchanges from year 2003–2019, this paper examines the impact of multiple large shareholders (MLS) on abnormal stock trading halts. The results reveal that listed companies with MLS have a lower probability of abnormal stock trading halts. When the number and share percentage of non-controlling shareholders increase, their inhibitory effect on arbitrary stock trading halts is more significant. Channel tests suggest that MLS can restrain abnormal stock trading halts by reducing the tunnelling activities by controlling shareholders, increasing the proportion of dissenting votes on corporate board, and improving corporate information disclosure quality. The impact of MLS on abnormal stock trading halts is more pronounced in firms with lower quality of internal control and information transparency.

Social and environmental disclosure in Indonesia: Does ownership matter?

Research aims: This study aims to analyze the effect of ownership structure on social and environmental disclosure in the annual reports of companies in Indonesia.Design/Methodology/Approach: This study used 208 panel data from 52 companies in the mining and real estate and building construction sectors. The dependent variable in this study was obtained by analyzing the content of the company's annual report. The hypothesis in this study was then tested using multiple linear regression.Research findings: The regression test results revealed that institutional ownership and managerial ownership had a significant effect on social and environmental disclosure. In contrast, multiple large shareholder structures (MLSS) had an insignificant effect on social and environmental disclosure.Theoretical contribution/Originality: This study enriches the literature about social and environmental disclosure with a new approach named SEDI. In addition, this research contributes to the scrutiny of the effect of MLSS on social and environmental disclosure, especially in the Indonesian context. This study also provides empirical evidence on the influence of ownership structure on social and environmental disclosure.Research limitation/Implication: This research was only limited to companies with many contacts with social and environmental issues, namely mining, agriculture, and real estate and building construction. Meanwhile, other companies are expected to be scrutinized in future research.

Multiple large shareholders, blockholder trading and stock price crash risk

AbstractWe show that in a setting with a strong concern for controlling shareholder entrenchment, firms with multiple large shareholders (MLS) are more likely to experience stock price crashes. As a result, when anticipating future revelations of bad news concerning corporate misconduct on information disclosure, large shareholders can exploit their information advantage and initiate their sales ex ante as far as eight quarters ahead. The positive association between MLS and crashes is more pronounced in the presence of noncontrolling shareholders' sales. Also, the positive predictive power of MLS on crash risk is more potent in firms with weak internal or external governance.

Ownership Concentration, Firm Risk taking and Performance: Evidence from Developing Economy of Pakistan

Ownership structure has a substantial impact on corporate decision-making and plays a significant part in the corporate governance framework. Ownership structure can accomplish a significant purpose in aligning interest of managers and owners. The legal protections provided to shareholders in a country have a significant impact on ownership concentration. From 2008 to 2018, data on 225 non-financial companies were obtained from the Pakistan Stock Exchange in order to analyze the effects of ownership concentration on business risk-taking and performance. Results postulated that Single large shareholder negatively affect corporate risk taking in act to preserve their personal benefits and support conservative investment policy. Presence of Multiple large shareholders proved to be a significant cause of internal governance mechanism, such firm’s charades higher risk taking profile because agency conflict between Single large shareholder and other shareholders were unfriendly and multiple large shareholders can enforce value exploiting risky investments by their voting power. Individual ownership (diffused ownership) is significantly negative associated with risk taking and performance measures. Diffuse ownership imparts power to managers because disperse owners cannot directly monitor managers’ practices and monitoring cost is very high. In such case mangers take those decisions which are in their personal favor and therefore favor low risk portfolio. Multiple conflicts between management and diffuse shareholders ultimately results in poor performance of the firm.

Reducing Symbolic Compliance: The Presence of Multiple Large Shareholders as an Internal Monitoring Mechanism

AbstractWe propose that in a context where corporate ownership is concentrated, the controlling shareholder of a firm tends to symbolically comply to regulatory requirements that aim to protect minority shareholders; yet the presence of multiple large shareholders can serve as an internal monitoring mechanism that can reduce symbolic compliance. We test this argument through examining firm responses to a regulatory requirement regarding independent accounting director appointments in China. Using data on China's listed non‐state‐owned enterprises, we find that the presence of multiple large shareholders decreases the likelihood of symbolic compliance, and this negative effect is stronger when noncontrolling large shareholders have low incentives to collude with the controlling shareholder. We also find that a firm engaging in symbolic compliance tends to have a greater level of tunnelling (by the largest shareholder) and earnings management. Our study contributes to the literature on symbolic management in an institutional setting where ownership is concentrated.