| Common ownership refers to the ownership structure where several same-industry firms share one or more same shareholders,and shareholders under such ownership structure are called common shareholders.Common ownership is prevalent around the global capital market,and related literature has been increasing rapidly in recent years.However,most studies focus on the US capital market,and little is known about the characteristics,effects,and explanations of the common ownership in China’s capital market.Compared with the U.S.capital market,where equity is more dispersed and institutional investors dominate,the Chinese capital market has a much higher degree of ownership concentration and institutional investors are relatively weak.Thus,it is quite possible that there are systemic differences in the features of common ownership between the Chinese capital market and the U.S.capital market.In addition,corporate governance of Chinese firms has its own unique features.In China’s capital market,in addition to the traditional agency problem between shareholders and executives,the agency conflict between the controlling shareholder and non-controlling shareholders is a more prominent corporate governance problem,which makes the controlling shareholder and executives the primary focus of corporate governance.As a result,it is imperative that non-controlling shareholders play a more active monitoring role.This paper studies the effect of common ownership on corporate governance from the perspective of non-controlling shareholders.Specifically,this paper mainly focuses on three questions:(1)can common ownership of non-controlling shareholders restrain the controlling shareholder’s tunnelling?(2)can common ownership of non-controlling shareholders improve executive pay-performance sensitivity?(3)will governance characteristics of firms connected by non-controlling shareholder converge?These questions corroborate each other and follows a logical order.First,the controlling shareholder and top executives are the two primary sources of agency problems,thus are the targets of monitoring by non-controlling shareholders.Second,when non-controlling common shareholders are involved in corporate governance,it is possible that the governance effect is not independent among co-owned firms,since common shareholders may take same actions among different firms in their portfolio.Thus,it is imperative to study the interfirm effect of non-controlling shareholder common ownership.The above three questions are logically consistent and constitute a complete research framework for the goveshance effect of non-controlling shareholders’ common-ownership.Using Chinese A-share listed firms during 2007-2019 as research sample,this paper identifies firm common owners using the top ten shareholder list from firm quarterly financial report and then construct multiple common ownership indexes to examine the governance effect of non-controlling shareholder common ownership.First,this paper theoretically analyzes and empirically tests the governance effect of non-controlling shareholders’ common ownership on controlling shareholders’tunnelling.Using a sample of 26,513 observation of Chinese A-share listed firms from 2007 to 2019,this paper finds a significantly negative relationship between noncontrolling shareholders’ common ownership and the controlling shareholder’s tunnelling,which remains robust after a battery of robustness and endogeneity tests.Further analyses reveal that such effect is stronger in firms where non-controlling common shareholders hold more other same-industry firms,firm information disclosure quality is lower,and earnings management is higher,suggesting that common ownership improves the information environment of non-controlling shareholders;Meanwhile,this paper finds that the above negative effect is more pronounced is firms where non-controlling shareholders has less balancing power,exit threat is small,and the separation of de facto controller’s control right and cash flow right is higher,suggesting that common ownership enhances the restrictive power of non-controlling shareholders.Furthermore,in order to explore the exact channel through which non-controlling common shareholders realize their governance effect,this paper conducts the mediating effect analysis.Mediating effect analyses reveal that appointing directors into corporate board mediates the negative relationship between non-controlling shareholders’ common ownership and the controlling shareholders’tunnelling.Finally,this paper finds that the governance effect of non-controlling common owners is stronger in non-state-owned firms.Second,this paper theoretically analyzes and empirically tests the governance effect of non-controlling shareholders’ common ownership on executive payperformance sensitivity.Using a sample of 28,370 observation of Chinese A-share listed firms from 2007 to 2019,this paper finds a significantly positive relationship between non-controlling shareholders’ common ownership and executive payperformance sensitivity,which remains robust after a battery of robustness and endogeneity tests.Then,this paper investigates the mechanisms through which noncontrolling shareholders’ common ownership improves executive pay-performance sensitivity.this paper finds that such positive effect is stronger in firms where noncontrolling common shareholders hold more other same-industry firms,and firm information disclosure quality is lower,suggesting that common ownership improves the information environment of non-controlling shareholders;this paper also finds the above positive effect is more pronounced in firms where non-controlling shareholders has less balancing power,and firm crash risk is higher,implying that common ownership enhances non-controlling shareholders’ restrictive power on executives.Furthermore,in order to explore the exact channel through which non-controlling common shareholders realize their governance effect,this paper conducts the mediating effect analysis.Mediating effect analyses reveal that appointing directors into corporate board mediates the positive relationship between non-controlling shareholders’common ownership and executive pay-performance sensitivity.Finally,this paper finds that non-controlling shareholders’ common ownership decreases executive overpay and increases turnover-performance sensitivity.In addition,the governance effect of noncontrolling common owners is stronger in non-state-owned firms.Third,this paper theoretically analyzes and empirically tests how non-controlling shareholders’ common ownership affects corporate governance characteristic convergence.Using Chinese A-share listed companies from 2007 to 2019 to construct a pair sample of 30,339 observations,this paper finds that if two firms are connected by a non-controlling common owner,their corporate governance characteristics are more convergent.Further analyses reveal that such convergence effect is more significant when the non-controlling common shareholder of the two firms has higher common ownership,holds the common ownership for a longer time,and invests fewer companies in the industry.In order to explore the exact channel through which common owner affects corporate governance convergence,this paper conducts the mediating effect analysis.this paper finds that sharing the same board members,members of the board of supervisors,and executives mediates the relation between common ownership and the convergence of corporate governance characteristics.Finally,this paper examines how the convergence effect varies with ownership structure and geographical proximity.this paper finds that when firms connected by the common owner are both SOEs or non-SOEs,and located in the same district,the convergence effect is more significant.This paper has the following contributions:(1)first,this paper extends the literature on the governance effect of common ownership.Common ownership has drawn intense intension in recent years,but extant studies mainly focus on top executives when studying the governance effect of common ownership.Little is known about whether common ownership can mitigate the agency conflict between the controlling shareholder and non-controlling shareholders.We find that non-controlling shareholders with common can restrain the controlling shareholder’s tunnelling,thus contributing the literature on the governance effect of common ownership.In addition,extant studies have found mixed findings when studying the effect of common ownership on executive pay-performance sensitivity.On the one hand,common shareholders may intentionally decrease executive pay-performance sensitivity to mitigate competition among co-owned firms.On the other hand,common ownership may improve common shareholders’monitoring ability,thus improving executive payperformance sensitivity.This paper provides new evidence to this argument based on Chinese institutional background.(2)Second,this paper provides new research perspective to common ownership studies.Extant studies almost focus on individual firms when studying the governance effect of common ownership.However,common ownership is essentially a network among co-owned firms,suggesting that corporate decisions of co-owned firms may not be independent.In other words,common ownership may have inter-firm effect.This paper studies when the corporate governance decisions of co-owned firms converge to each other,thus not only restoring the full picture of common ownership’s governance effect but also providing a new perspective for future studies to study common ownership.(3)Third,this paper also extends literature on non-controlling shareholders’governance effect.In recent years,the calls for increasing non-controlling shareholders’power in corporate governance has been grown rapidly.There is a growing tendency that non-controlling shareholders shift from "voting with feet" to "voting with hands",and regulators have been improving institutions to increase non-controlling shareholders’ voice in corporate governance decision.Nevertheless,whether noncontrolling shareholders can actually improve corporate governance is still under debate.Such debate is likely due to the heterogeneity in non-controlling shareholders’governance ability.Specifically,when studying the governance effect of noncontrolling shareholders,extant studies assume that shareholders of different firms are independent,thus neglecting the possibility that shareholders of multiple firms may have a better information environment and better ability.This paper investigates the governance effect of non-controlling shareholders by focusing on their common ownership,thus revealing an important new factor that affects non-controlling shareholders’ monitoring effectiveness. |
PDF Full Text Request