Empirical Study On Effect Of Equity Restriction On The Performance Of Listed Companies

In the research field of corporate governance, equity restriction as the mechanism which can simultaneously alleviate two types of governance conflicts is increasingly concerned by scholars, but they have not been unified conclusion about the effect of equity restriction on the firm performance. This paper firstly summarizes the existing research and analyzes why the conclusions are not uniform. We find the main reason is the overestimating of equity restriction ratio which resulted from not excluding the associated shareholders or persons acting in concert when measure the equity restriction ratio. Thus, this paper measures the new equity restriction ratio considering the relationship between shareholders, and selects the A-share listed companies'data for samples from Shenzhen Stock Exchange and the Shanghai Stock Exchange during 2003-2013 to analyze the characteristics of equity restriction and firm performance. Finally, this paper studies the nonlinear effect and mediating effect of equity restriction on the firm performance by using balanced panel data, regression models and Equities Equilibrium, Governance Cost and Corporate Performance (ECP) analytical framework.We find that:Firstly, the equity restriction ratio is overestimating in the existing literature, which may lead to deviation. Both the increasing of new equity restriction ratio and controlling of major shareholders can improve the firm performance, the effect of new equity restriction on the performance is nonlinear and firm performance is significant " U —style" related with the new equity restriction ratio. There is a grey interval of equity restriction ratio [1,2], where the effect of equity restriction on firm performance is negative; Secondly, the firm performance shape style on the equity restriction ratio is effected by some conditions, such as the shareholders' holding pattern and the environment. It's "H—style" when the big shareholders have absolute control power, and it's "U—style" when they have relative control power, the "grey interval" exists only in the relative holding pattern; When the external environment is poor, the positive effect of equity restriction is more significant. Finally, when the equity restrictions ratio less than 1. the mediating effect of the managements cost and accounts receivable-others is significant.Based on this, the "linear theory" that we can improve firm performance by increasing the equity restriction ratio may not be able to play the expected role. We believe that:We should use the new equity restriction which including more comprehensive information to study; Do not have too much emphasis on suppression the holding of big shareholder or enhancement the equity restriction, it's better to focus on the coordination and cooperation of both to play a positive effect.; We should choose "non grey interval" of equity restriction based on considering some factors such as the major shareholders holding pattern and the cost of management in order to maximize the positive impact of equity restriction on the firm performance; It's important to encourage shareholders to manage company when strengthen the construction of external governance environment, we should strengthen corporate governance from both inside and outside.