Managerial Ownership, Board Monitoring and Firm Performance in a Family‐Concentrated Corporate Environment

21 Pages Posted: 14 Dec 2012

See all articles by Peter Shu-tong Cheng

Peter Shu-tong Cheng

Hong Kong Polytechnic University

Lixin (Nancy) Su

Department of Accountancy, Lingnan University

Xindong (Kevin) Zhu

City University of Hong Kong

Date Written: December 2012

Abstract

Using data from Hong Kong, a market that has family‐concentrated ownership structure, we examine the relation between managerial ownership, the board of directors and firm performance. We first conduct analysis on the managerial ownership and firm performance to derive the turning points where either ‘convergence of interest’ or ‘entrenchment’ effect of managerial ownership is dominant. Based on these estimated turning points, we find that at low and high level of ownership, effective board mitigates the entrenchment effect associated with managerial ownership; at medium level of ownership, board effectiveness is less demanded. These findings suggest that managerial ownership and board monitoring are substitutes in mitigating the agency problem between managers and shareholders. We also find that effective board curbs the excessive compensation by entrenched managers to themselves at low level of managerial ownership.

Keywords: Board of directors, Family concentration, Firm performance, Managerial compensation, Managerial ownership

JEL Classification: G32, L25, J3

Suggested Citation

Cheng, Peter Shu-tong and Su, Lixin (Nancy) and Zhu, Xindong (Kevin), Managerial Ownership, Board Monitoring and Firm Performance in a Family‐Concentrated Corporate Environment (December 2012). Accounting & Finance, Vol. 52, Issue 4, pp. 1061-1081, 2012. Available at SSRN: https://ssrn.com/abstract=2189333 or http://dx.doi.org/10.1111/j.1467-629X.2011.00448.x

Peter Shu-tong Cheng

Hong Kong Polytechnic University ( email )

Hung Hom, Kowloon
Hong Kong

Lixin (Nancy) Su

Department of Accountancy, Lingnan University ( email )

8 Castle Peak Road
Lingnan University
Hong Kong, New Territories
China

Xindong (Kevin) Zhu

City University of Hong Kong ( email )

Kowloon
Hong Kong

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