Shareholder Governance Research Articles

Token-based platform governance

We develop a model to compare the governance of traditional shareholder-owned platforms to that of platforms that issue tokens. A traditional shareholder governance structure leads a platform to extract rents from its users. A platform that issues tokens for its services can mitigate this rent extraction, as rent extraction lowers the platform owners’ token seigniorage revenues. However, this mitigation from issuing “service tokens” is effective only if the platform can commit itself not to dilute the “service token” subsequently. Issuing “hybrid tokens” that bundle claims on the platform’s services and its profits enhances efficiency even absent ex-ante commitment power. Finally, giving users the right to vote on platform policies, by contrast, redistributes surplus but does not necessarily enhance efficiency.

An empirical investigation of the mitigating effect of debt on overinvestment as shareholder rights vary

AbstractIn this study, we investigate the relationship between debt governance and overinvestment. We use net cash flows to debtholders as a proxy for debt governance and find that an increase in these cash flows mitigates firms' overinvestment. We also show that free cash flows lead cash‐rich and cash‐poor firms to overinvest but that debt governance attenuates this problem. Finally, we find that the mitigating effect of net cash flows to debtholders on overinvestment is highly pronounced in firms with poor governance. These findings suggest that net cash flows to debtholders are particularly effective when shareholder governance is weak. We conclude that cash flows to debtholders can effectively prevent overinvestment and reduce the agency costs of free cash flows.

How partial nationalizations affect technological innovation in mixed-ownership enterprises: A theoretical explanation based on the effects of heterogeneous shareholder governance and resource acquisition

Unlike previous studies focusing on mixed-ownership reforms, mainly privatisation of state-owned enterprises, this study discusses the impact of partial nationalization and the appointment of D&Os on innovation investment and quality, measured in two dimensions: the heterogeneous shareholder governance effect and the shareholder resource acquisition effect. We find that the introduction of state-owned capital helps to promote the R&D investment and innovation quality of mixed-ownership private companies, and the introduction of state-owned capital and the appointment of D&Os have a more significant effect on the innovation investment and innovation quality of mixed-ownership private companies. The results of mechanism tests show that the impact of state capital introduction on R&D investment and strategic innovations is mainly through policy resources accesses and suppression of the tunnelling effect of non-state controlling shareholders.This paper verifies the adaptability of the shareholder resource acquisition effect and the heterogeneous shareholder governance effect in Chinese listed companies from the perspective of state-owned capital participation and the appointment of D&Os to promote the technological innovation of mixed-ownership private companies, and, at the same time, enriches the relevant literature on the economic consequences of the mixed-ownership reform from the perspective of the dimension of state-owned capital participation on the technological innovation of private companies.

Non‐state shareholder governance and technological innovations of state‐owned enterprises: The moderating effect of executive compensation incentives

AbstractThis study focuses on the impact mechanism of non‐state shareholder governance on technological innovation in state‐owned enterprises (SOEs) from the perspective of executive compensation incentives, using listed manufacturing companies of SOEs from 2014 to 2020 as research samples. The research findings indicate that the mere ownership of shares by non‐state shareholders has no significant impact on technological innovation. However, the delegation of executives by non‐state shareholders contributes to enhancing technological innovation in SOEs. So Improving technological innovation in SOEs is a crucial objective in the ongoing deepening and enhancing actions of the new round of state‐owned enterprise reforms.

The influence of non-state-owned shareholder governance on the governance level of state-owned enterprises--Based on the perspective of board resolution behavior and party organization governance.

With an increasing number of heterogeneous shareholders participating in corporate governance in reality, the assumption of shareholder homogeneity in agency theory is gradually relaxing in the modern field of corporate governance. The policy of mixed ownership reform in China provides empirical evidence for studying heterogeneous shareholder governance. To fully understand the governance effects of non-state shareholders, we employ the ownership proportion held by non-state shareholders among the top ten shareholders and the appointment of directors as measures for non-state shareholder governance. Using a panel fixed-effect model from the perspective of state-owned enterprises (SOEs) party organizations, we examine the impact of non-state shareholder governance on the governance level of SOEs. The study reveals that non-state shareholder governance positively affects the governance level of SOEs, with board resolutions playing a crucial role in this relationship. When party members serve as directors, the governance effect of non-state shareholders is more significant. Based on the aforementioned research findings, we recommend further refining corporate governance measures for SOEs within the context of SOE reforms. It is advisable to optimize the party organizational governance structure and leverage the synergistic effects of non-state shareholder governance and party organizational governance. Advancing reforms along the Pareto improvement path will contribute to establishing a distinctive corporate governance system for Chinese SOEs.

Type Diversity of Institutional Investors and Opportunistic Acquisitions

Institutional investors of different types have been shown to exert differential influences on firm strategic decisions individually. Yet, research has largely overlooked how institutional investors of different types can collectively affect firm decision-making. This study investigates the legal type diversity of institutional ownership (hereafter “investor type diversity”) and its influence on corporate acquisitions. Because institutional investors with different legal types have distinct interests and objectives, investor type diversity can create principal–principal conflicts and prevent institutional investors from undertaking coordinated actions, weakening their collective power and ability to play a governance role. We posit that investor type diversity will be positively associated with CEOs’ opportunistic acquisitions because the dilution of shareholder governance, resulting from investor type diversity, grants CEOs the leeway to champion acquisitions aligned more with their personal gains. We also argue that the positive influence of investor type diversity on opportunistic acquisitions will be stronger when CEOs possess a higher level of general managerial ability. However, acquisitions pursued in the presence of higher investor type diversity will be associated with poorer performance. Findings from a sample of 2,106 U.S. firms lend support to our arguments. This study advances strategy research by highlighting the importance of investor type diversity in shaping shareholder governance effectiveness.

Shareholders' political hierarchy and regulatory enforcement: Evidence from corporate risk management

In our study, we investigate the impact of shareholders' political hierarchy on regulatory enforcement within the context of a Chinese local state-owned enterprise where multiple government shareholders, each with different political hierarchical levels, coexist. Our research reveals that the presence of higher-level noncontrolling government shareholders, specifically noncontrolling government shareholders with a higher hierarchical level than the controlling government shareholders, enhances the risk-reducing effect of derivative use. This indicates that higher-level noncontrolling government shareholders play a role in facilitating the enforcement of derivative-related regulations. Additionally, we find that these higher-level noncontrolling government shareholders enhance the efficiency of derivative use through two primary channels: their superior access to regulatory information and their monitoring of corporate regulatory compliance. We also explore the impact of higher-level noncontrolling government shareholders in regulatory enforcement by examining the 2009–2010 top-down derivative-related regulation. In summary, our analysis underscores the positive influence of higher-level noncontrolling government shareholders on risk management efficiency, primarily due to their information advantage regarding regulations, which subsequently strengthens the enforceability of regulatory measures.

Governance of nonstate shareholders and short-term debt for long-term investments

ABSTRACT We study the relationship between nonstate shareholder governance and short-term debt for long-term investment of state-owned enterprises in China from 2009 to 2021. Drawing on a novel, hand-collected database, we find that nonstate shareholder governance has a significantly negative effect on short-term debt used for long-term investments. Our study provides a new analytical perspective for maturity mismatch and theoretical support for deepening the reform of state-owned enterprises.

System Identification of Enterprise Innovation Factor Combinations—A Fuzzy-Set Qualitative Comparative Analysis Method

High-tech manufacturing enterprises, as innovative entities, are a key focus of national attention. Currently, such enterprises are facing both internal governance pressure and external institutional pressure. Unlike traditional studies that mostly use regression equations, this article uses the fuzzy-set qualitative comparative analysis method to examine how high-tech manufacturing enterprises can coordinate their internal governance mechanisms and external institutional pressures to achieve optimal innovation. This improves the complex mechanism of the multiple factors jointly explaining corporate innovation, and also helps to elucidate the nonlinear relationship between internal governance factors, external institutional factors, and corporate innovation, effectively enriching research methods and results. However, there has not been any research on the issue of enterprise innovation from the perspective of coordinating the two, which urgently needs to be addressed. This article examines how high-tech manufacturing enterprises can reconcile their internal governance mechanisms with external institutional pressures to achieve optimal innovation. The results showed that (1) a single factor cannot constitute the necessary conditions for innovation in high-tech manufacturing enterprises, but executive and shareholder governance have universality in the innovation in high-tech manufacturing enterprises; (2) in the absence of political advantages, high-tech manufacturing enterprises should focus on the coordinated development of internal governance, making board, executive, and shareholder governance the core conditions for innovative development; (3) with political advantages as the main focus and market attention as a supplement, high-tech manufacturing enterprises promote innovative development by combining executive and shareholder governance. This finding indicates a significant substitution effect between government legitimacy and board governance, and confirms that the importance of obtaining government legitimacy for high-tech manufacturing innovation is higher than market legitimacy. This article enriches the research on enterprise innovation by linking internal corporate governance with external institutional pressure, expands the research on the coordination relationship between institutional pressure and corporate governance, and has enlightening significance in revealing the collaborative path for innovation in high-tech manufacturing enterprises.

Corporate governance for sustainable development in Vietnam: Criteria for SOEs based on MCDM approach.

This research explores the nexus between corporate governance and sustainable development, focusing on State-Owned Enterprises (SOEs) in Vietnam. Recognizing the pivotal role of SOEs in the national economy, this study employs a Multi-Criteria Decision-Making approach (MCDM) to assess and enhance the corporate governance frameworks of these entities. First, the Data Envelopment Analysis (DEA) model is employed to identify the most qualified prospective SOEs firms based on several quantitative criteria. Then, the spherical fuzzy analytic hierarchy process (SF-AHP) model is used to identify priority weights for a given set of qualitative criteria, the Evaluation based on distance from average solution (EDAS) model is implemented to rank enterprises in the SOEs sector. To validate the proposed models, a case study conducted within the Vietnamese electric power industry is utilized. The MCDM methodology integrates diverse factors such as business management, corporate social responsibility, and corporate governance shareholder to construct a comprehensive evaluation framework. By applying this approach, the study aims to identify the key drivers and barriers influencing corporate governance practices within Vietnamese SOEs. The study's findings illustrate the efficacy of the suggested approach in evaluating corporate governance performance, providing valuable insights for policymakers, corporate leaders, and stakeholders involved in shaping the governance landscape of SOEs in Vietnam. By aligning corporate governance with sustainable development principles, the research aims to contribute to the ongoing discourse on responsible business practices, offering practical recommendations to enhance the performance and resilience of SOEs in the pursuit of long-term socio-economic and environmental sustainability.

Clear the air via dividends: Corporates' response to air pollution

AbstractBased on China A‐share listed firms, we investigate how firms respond to air pollution using the dividend payout policy. We highlight the signaling role of dividends, documenting that firms pay higher dividends to appease and attract investors when facing more severe pollution. This effect is more pronounced when investor attention is high and less salient if shareholder governance is strong, reinforcing the signaling hypothesis and substitute model of dividend theory. Our results reject the hypothesis that air pollution decreases dividend payouts by enlarging a firm's financial constraints and cash flow uncertainty.

Does local government debt regulation improve rural banks’ performance? Evidence from China

This study offers a new approach to measure the intensity of local government debt regulations using textual analysis. Based on a sample of 71 rural banks in 21 Chinese provinces from 2013 to 2019, we investigate the impact of the number and proportion of keywords in local debt-related documents on rural banks’ performance. Results show that an increase in debt regulation improves banks’ performance by reducing local government debt. Moreover, an increase in the proportion of government shareholdings in rural banks as well as fiscal pressure weaken this impact; an increase in economic development pressure strengthens this impact.

On the shareholders versus stakeholders debate

When externalities are present, is the inclusion of the affected stakeholders in the firm's decision process a better solution than the shareholder governance? This paper argues that the internalization of the externality hinges on the available information and the market strategy used by the firm rather than its governance structure. In the absence of income effects (i.e., if preferences are quasi-linear), a market for “customer rights” reveals all the necessary information about the surplus of a homogeneous consumer population. In that case, a Coase-type equivalence obtains: whether the firm uses the information in the interest of its shareholders or all its stakeholders, the outcome in each case is an efficient allocation. With income effects, the market for customer rights may fail. Still, if appropriate information can be obtained, efficiency can be achieved under both governance structures (or neither).

Non-state shareholder governance and corporate innovation efficiency under the background of mixed ownership reform: evidence from China

ABSTRACTBased on data from Chinese SOEs that participated in the mixed ownership reform between 2013 and 2020, mixed OLS and fixed effects models are used to empirically test the impact of non-state-owned shareholders’ participation in board governance on the innovation effectiveness of SOEs in the mixed ownership reform. The empirical results show that: the proportion of non-state shareholder-appointed boards can significantly improve the innovation efficiency of SOEs, and the findings still hold after a series of robustness tests. The impact of the governance of non-state shareholders on the innovation efficiency of SOEs is heterogeneous in two aspects: equity incentives for managers and knowledge absorption capacity. This paper enriches the research on the governance of non-state shareholder boards under mixed ownership reform. It provides empirical evidence and policy implications for optimising the innovation efficiency of SOEs.

Protection of the Minority Shareholders in Company Law Regime

This comprehensive article explores the critical role of minority shareholders and the legal frameworks and mechanisms established to protect the interests and rights of minority shareholders within the realm of company law and corporate governance. Minority shareholders, despite their smaller ownership stakes, hold a substantial influence in maintaining the equilibrium of power, ethical conduct, and financial integrity within the corporations. The safeguarding and empowerment of minority shareholders within the expansive domain of company law are not just legal obligations but also the basic ethical principle of corporate governance. This article engages in an exploration of the complex mechanisms and prosperous legal provisions designed to ensure the protection, participation, and prosperity of minority shareholders within the vast realm of company law and it also into understanding the role of minority shareholders as guardians of corporate democracy provides a foundation for appreciating their influence in the corporate world. The Minority Shareholders are not just shareholders but they are also the advocates for ethical conduct, transparency, and accountability of the Company. The neglect of the protection of the minority shareholders within a company can result in a range of adverse consequences, and the article explores the negative effects of not safeguarding the rights and interests of minority shareholders, including the erosion of trust and confidence, reduced investment, and diminished market value. The article highlights the paramount significance of these safeguards, examines the complexities of regulatory architecture, navigates potential challenges, and provides an exhaustive understanding of the comprehensive and evolving protection, rights, and opportunities extended to the minority shareholders in modern corporate governance.

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.

The AGM as a site of contestation: evaluating the tactics of environmental shareholder activists

ABSTRACT The politics of climate change in Australia remains highly fraught, this is despite the country experiencing acute impacts of a changing climate including mega-fires, floods, and severe and prolonged drought. Government inaction has led to limited market signals encouraging producers or consumers to move away from carbon intensive energy production to clean energy. In the absence of regulation, Australian shareholder activists are engaging directly with company boards and executives to reform corporate behaviour. This engagement, environmental, social, and governance (ESG) shareholder activism, has proliferated since 2017, much later than in comparable jurisdictions. Activists have targeted the mining, oil and gas, and finance sectors, due to their contribution to the Australian economy and their direct impact on global emissions. This paper explores the reasons for, and the implications of, the growth in ESG shareholder activism in Australia. It argues that the emergence of this activism in Australia was delayed due to complexities in the country's corporations' law. Regulatory attempts at stymying ESG shareholder activism resulted in the emergence of a duopoly of actors, at the cost of broader investor and civil society engagement. It is concluded that the rise of ESG shareholder activism in Australia is linked to growing tension between societal expectations, regulation, and the behaviour of firms. And, that ESG activists have been successful in leveraging this tension. There is evidence that large corporates have responded to activist claims, rendering this form of activism a potentially effective method for addressing some of the most pressing issues facing society.

Ownership Concentration, CEO’s Technical Background and Enterprise Innovation

From the perspective of enterprise innovation, this paper studies whether companies with higher ownership concentration are willing to hire a technology CEO. This paper studies the relationship between ownership concentration, CEO’s technical background, and enterprise innovation by taking private listed companies on small and medium-sized boards in Shenzhen Stock Market from 2011 to 2019 as research samples. The results show that CEO’s technical background promotes enterprise innovation. However, enterprises with higher ownership concentration are more willing to hire a non-technology CEO. Ownership concentration not only directly hinders enterprise innovation, but also indirectly hinders enterprise innovation by hindering the selection and recruitment of technical CEOs. Further research shows that under the condition of shareholding, technology CEOs significantly promote enterprise innovation, while under the condition of non-shareholding, technology CEOs have no significant impact on enterprise innovation. Without serving as chairmen, technical CEOs significantly promotes enterprise innovation, while serving as chairmen, technical CEOs have no significant impact on enterprise innovation. However, in the samples with high ownership concentration, there are significantly more companies where CEO serves as chairman and significantly fewer companies where CEO holds shares, which indicates that companies with high ownership concentration do not actively implement innovation incentive measures for CEOs. This study provides an important basis for Chinese private small and medium-sized enterprises to make innovative decisions in major shareholder governance and general manager selection.

Non-family shareholder governance and green innovation of family firms: A socio-emotional wealth theory perspective

We draw on socio-emotional wealth (SEW) theory to investigate the influence of non-family shareholder governance (NFSG) on green innovation in family firms. We find that non-family shareholder holding has no significant impact on green innovation, but the directors appointed by non-family shareholders (NFSDAs) significantly promote the implementation of green innovation strategies in family firms. The underlying mechanisms are characterized by NFSG bringing valuable resources and promoting the firm reputation, which further facilitates green innovation. The effect of NFSG is more pronounced for entrepreneurial family firms and family firms located in high institutional efficiency areas. The green professional backgrounds of NFSDAs and having excess NFSDAs also effectively promote green innovation. Finally, green innovation promotes the long-term orientation of family firms. Through this study, we draw on SEW theory to enrich research on NFSG and green innovation in family firms. Our findings can help family firms achieve a solid basis for long-term orientation.

Non‐state shareholder governance and corporate sustainability: Evidence from environmental, social and governance ratings

AbstractWe study how non‐state shareholder governance affects the performance of corporate environmental, social and governance (hereinafter ESG). We select all A‐shares state‐owned listed companies on the Shanghai and Shenzhen stock exchanges from 2011 to 2020 as the research sample. We find that non‐state shareholder governance can improve the ESG ratings by improving green innovation and information transparency. Further analysis shows that non‐state shareholder governance has a significant impact on the ESG ratings of polluting industries, high degree of marketization area, and high competitive industries; the enthusiasm of non‐state shareholders to participate in shareholders' meeting has a great impact on the ESG ratings. This research enriches the influence of non‐state shareholder governance and provides channels for state‐owned enterprises to improve ESG ratings. In addition, this article has important practical significance for state‐owned enterprises to deepen reform and strengthen environmental governance.