Managerial Ownership, Board Structure And Firm Performance

Nowadays, many companies have separated the ownership and management, theprincipal-agent problems between shareholders and managers are increasingly prominent.Establishing a set of effective incentive and constraint mechanism is particularly importantfor the enterprises. Managerial ownership and board governance are both important partsin corporate governance structure. Their effect on firm performance has been paid closeattention by the researchers. Domestic and foreign scholars have analyzed the relationshipamong managerial ownership, board structure and firm performance from theoretical andempirical aspects respectively. Throughout the existing literatures, scholars have notreached consensus about the research results of the relationship above. This paper takesempirical analysis on the basis of recent data from Chinese listed companies and under thebackground of China’s economy.First of all, this paper goes through all the relevant references concerning therelationship among managerial ownership, board structure and firm performance. Secondly,this paper analyzes the cause for the correlations based on the theories of principal-agent,human capital, resource dependence and signal transmission. It also combines the analysiswith the real situation. Therefore, we use multiple regression method and simultaneousequations method to analyze relevant data of Chinese main board listed companies during2009and2012in order to find the functional mechanism of managerial ownership, boardstructure and firm performance. The empirical analysis is taken from both exogenous andendogenous perspectives. We select the proportion of independent directors in all the boarddirectors and the board size as two variables of board structure to join the model. Ourempirical study shows that managerial ownership has a significant influence on firmperformance and it is an inverted "U" shaped relationship from both of the twoperspectives. Independent directors do not play an obvious role in promoting firmperformance. Board size has a significant negative correlation with firm performance.Managerial ownership has an endogenously interactive relationship with board structure. According to the research conclusion, this paper puts forward the following suggestions forChinese listed companies such as appropriately improving the proportion of managerialownership, strengthening the system construction of independent directors, appropriatelystreamlining the board size.