Ultimate Parent Board Reform and Corporate Overinvestment: A Quasi‐Natural Experiment Study

33 Pages Posted: 7 Mar 2019

See all articles by Sujuan Xie

Sujuan Xie

Sun Yat-sen University (SYSU)

Yue Xu

Sun Yat-sen University (SYSU)

Jusheng Yang

Sun Yat-sen University (SYSU)

Yamin Zeng

Jinan University

Date Written: March 2019

Abstract

Using government‐led board reform as a quasi‐natural experiment, we find that board reform at Chinese state controlling shareholders significantly alleviates overinvestment at their listed subsidiaries. The positive role of board reform in reducing overinvestment is stronger when state controlling shareholders have weak incentive to expropriate listed subsidiaries, or they can better monitor the listed subsidiaries through assigned top management. Furthermore, we find that board reform further reduces managerial cost at their listed subsidiaries. Overall, our findings suggest that government‐led board reform enhances internal governance at state controlling shareholders and has a positive effect on investment policy at their listed subsidiaries.

Keywords: Board reform, Outside director, Ultimate parent, Overinvestment, Central SOEs

Suggested Citation

Xie, Sujuan and Xu, Yue and Yang, Jusheng and Zeng, Yamin, Ultimate Parent Board Reform and Corporate Overinvestment: A Quasi‐Natural Experiment Study (March 2019). Accounting & Finance, Vol. 58, Issue 5, pp. 1469-1501, 2019, Available at SSRN: https://ssrn.com/abstract=3347976 or http://dx.doi.org/10.1111/acfi.12443

Sujuan Xie (Contact Author)

Sun Yat-sen University (SYSU)

135, Xingang Xi Road
Guangzhou, Guangdong 510275
China

Yue Xu

Sun Yat-sen University (SYSU) ( email )

Guangzhou, Guangdong
China

Jusheng Yang

Sun Yat-sen University (SYSU) ( email )

135, Xingang Xi Road
Guangzhou, Guangdong 510275
China

Yamin Zeng

Jinan University ( email )

China

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