Is Concentrated Management Ownership Value Increasing or Decreasing? Evidence in Hong Kong, China During the Asian Financial Crisis

Abstract

This study evaluates the effects of concentrated management (board director) ownership on changes of firm performance (value and ROA) following the Asian Financial Crisis (1997-98), a shock period when corporate governance structures are of greater concern and strongly tested. Our results show that Hong Kong firms with higher concentrated management ownership had less negative returns (better market performance) and smaller decreases in returns on assets (better accounting performance) during the Crisis. We also find more ownership by non-executive directors is value increasing and no evidence that their proportion improves performance. The results are consistent with the convergence of interests theory between controlling and minority shareholders at concentrated levels of management ownership leading to value increases.

Keywords: Corporate governance, firm performance, management ownership, financial crisis

JEL Classification: G34, G12, G15, G32, G38