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Principal—Principal Conflict in the Governance of the Chinese Public Corporation

  • Yiyi Su (a1), Dean Xu (a2) and Phillip H. Phan (a3)
  • DOI: http://dx.doi.org/10.1111/j.1740-8784.2007.00090.x
  • Published online: 02 February 2015
Abstract

By examining the level of ownership concentration across firms, we determine how principal–principal conflict, defined as the incongruence of ownership goals among shareholder groups in a corporation, impacts agency costs of Chinese boards of directors. Based on data from Chinese companies listed on the Shanghai and Shenzhen stock exchanges during 1999-2003, we found that ownership concentration had a U-shaped relationship with board compensation, board size and the presence of independent directors. These results provide corroborating evidence that principal-principal conflict can lead to high agency costs.

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