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Agency Cost of Government Ownership: A Study of Voluntary Audit Comitte Formation in China

Author

Listed:
  • Charlie X. Cai

    (University of Leeds)

  • David Hillier

    (University of Leeds)

  • Gaoliang Tian

    (Civil Engineering, Xi'an JiaoTong University)

  • Qinghua Wu

    (Fudan University)

Abstract

In this paper, we investigate the agency costs of government ownership and their impact on corporate governance and firm value. China is used as a laboratory because of the prevalent state shareholdings in exchange-listed firms. In this context, we specifically consider the trade-offs involved in the voluntary formation of an audit committee when the controlling shareholder is the state. The decision to improve corporate governance (in this case, introduce an audit committee) is shown to be value relevant and a function of existing agency relationships and non-trivial implementation costs. Our findings are robust to the level of pyramid groups, the ownership-control wedge, and financial leverage. The research adds to the debate regarding the effect of government shareholdings on corporate culture and performance - a topic that hastaken on renewed importance in recent times.

Suggested Citation

  • Charlie X. Cai & David Hillier & Gaoliang Tian & Qinghua Wu, "undated". "Agency Cost of Government Ownership: A Study of Voluntary Audit Comitte Formation in China," Working Papers 200903, Departament Empresa, Universitat Autònoma de Barcelona.
    • Handle: RePEc:bbe:wpaper:200903
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    File URL: http://webs2002.uab.es/dep-economia-empresa/documents/09-3.pdf
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