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The nonlinear effect of shareholder ownership structure on a firm's cash holdings: Type I and Type II agency problem perspectives in China's split-share reform

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  • Huang, Bingbing
  • Zhang, Xuehui
  • Bi, Qian

Abstract

Leveraging China's 2006 split-share reform (converting previously non-tradable shares into tradable shares) as an exogenous shock, we use an agency conflict framework to examine the impact of a shareholder ownership structure on a firm's cash holdings. Our findings suggest that both the top shareholder ownership percentage and the checks and balances of other large shareholders (the ratio of second- and third-largest shareholder combined ownership to that of the top shareholder) positively affect a firm's cash holdings after the Reform. However, the increase in cash holdings exhibits a decreasing rate. The results are consistent with the notion that both Type I (between management and shareholders) and Type II (between controlling and minority shareholders) agency problem affect a firm's cash holdings. While both state-owned firms (SOEs) and non-state-owned firms (non-SOEs) exhibit qualitatively similar findings, the impact of the top shareholder ownership and the checks and balances of other large shareholder structure changes on cash holdings is more salient among non-SOEs.

Suggested Citation

  • Huang, Bingbing & Zhang, Xuehui & Bi, Qian, 2022. "The nonlinear effect of shareholder ownership structure on a firm's cash holdings: Type I and Type II agency problem perspectives in China's split-share reform," International Review of Economics & Finance, Elsevier, vol. 77(C), pages 493-504.
    • Handle: RePEc:eee:reveco:v:77:y:2022:i:c:p:493-504
    DOI: 10.1016/j.iref.2021.10.014
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    2. Chen, Wenrui & Liu, Xinghe & Hong, Yun, 2023. "Two heads better than one? Strategic alliance and firms excess cash holdings," Finance Research Letters, Elsevier, vol. 52(C).
    3. Li, Mengzhe & Lan, Fei, 2022. "Former CEO directors and cash holdings," Economic Analysis and Policy, Elsevier, vol. 75(C), pages 320-334.
    4. Tian, Zengrui & Zhu, Bingsheng & Lu, Yuzhong, 2023. "The governance of non-state shareholders and corporate ESG: Empirical evidence from China," Finance Research Letters, Elsevier, vol. 56(C).
    5. Zhang, Lipai & Li, Biao, 2022. "Mutual supervision or conspiracy? The incentive effect of multiple large shareholders on audit quality requirements," International Review of Financial Analysis, Elsevier, vol. 83(C).
    6. Jiamin Nie & Shanli Ye, 2022. "Ownership Structure, Corporate Governance, and Performance of Listed Companies—An Empirical Application of a Semi-Parametric Quantile Regression Model," Sustainability, MDPI, vol. 14(24), pages 1-18, December.

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