Blockholders and corporate governance: evidence from China’s split-share-structure reform
Review of Accounting and Finance
ISSN: 1475-7702
Article publication date: 1 July 2021
Issue publication date: 29 July 2021
Abstract
Purpose
Proper empirical tests of the effect of blockholders’ monitoring incentives on corporate governance are scant in the literature because the relationship between ownership structure and enforcement of corporate governance mechanisms is bidirectional. This study aims to address the endogeneity issue by examining the effect of blockholding on executive turnover–performance sensitivity, using the split-share-structure (SSS) reform in China as an exogenous shock to blockholders’ monitoring incentives.
Design/methodology/approach
This study uses a logit model for estimating the change in executive turnover–performance sensitivity around the SSS reform. Sub-sample analysis is conducted to examine whether the impact of SSS reform on the turnover-performance sensitivity is stronger for firms with more contestable blockholders who might consider stock liquidity, risk sharing and diversification in their monitoring/trading decisions.
Findings
Top executive turnover, defined as CEO or board chair turnover, becomes less sensitive to firm operating performance after the reform, mainly for firms with contestable blockholders prior to the reform. Stock liquidity and blockholders’ demand for diversification can explain the impact of contestable blockholding. Moreover, blockholding is sensitive to firm operating performance after the reform but not before it.
Originality/value
With few exceptions, most studies in the blockholding literature focus on the effect of blockholder monitoring on firm value. Examining an exogenous shock to blockholding, this paper provides a set of new evidence for the impact of blockholding on executive turnover–performance sensitivity. The results call for more evidence of the impact of blockholding on executive turnover from other markets.
Keywords
Acknowledgements
We thank Hungwan Kot, Eric Lam, Liang Shao, Miriam Schwartz-Ziv, Aristotelis Stouraitis, seminar participants at Hong Kong Baptist University, and participants of the IFABS Asia 2017 Ningbo Conference and 26th Annual MFS Conference for helpful comments and suggestions. We also thank Florrie Cheang for excellent research support. Tam acknowledges research grant support (MYRG2017-00164-FBA) from University of Macau. All errors are our own.
Citation
Qian, X. and Tam, L. (2020), "Blockholders and corporate governance: evidence from China’s split-share-structure reform", Review of Accounting and Finance, Vol. 20 No. 1, pp. 53-83. https://doi.org/10.1108/RAF-07-2020-0184
Publisher
:Emerald Publishing Limited
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