Skip to main content Accessibility help

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

  • Yiyi Su (a1), Dean Xu (a2) and Phillip H. Phan (a3)


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.



Hide All
Amihud, Y., & Lev, B. 1981. Risk reduction as a managerial motive for conglomerate mergers. Bell Journal of Economics, 12: 605617.
Amihud, Y., & Lev, B. 1999. Does corporate ownership structure affect its strategy towards diversification? Strategic Management Journal, 20: 10631069.
Baer, H. L., & Gray, C. W. 1995. Debt as a control device in transitional economies: The experiences of Hungary and Poland. In Policy Research Working Paper Series 1480. Washington, D. C.: The World Bank.
Bai, C., & Wang, Y. 1998. Bureaucratic control and the soft budget constraint. Journal of Comparative Economics, 26: 4161.
Bathala, C. T., & Rao, R. P. 1995. The determinants of board composition: An agency theory perspective. Managerial and Decision Economics, 16: 5969.
Baysinger, B. D., Kosnik, R. D., & Turk, T. A. 1991. Effects of board and ownership structure on corporate R&D strategy. Academy of Management Journal, 34: 205214.
Boyd, B. K. 1995. CEO duality and firm performance: A contingency model. Strategic Management Journal, 16: 301312.
Chang, S. J. 2003. Ownership structure, expropriation, and performance of group-affiliated companies in Korea. Academy of Management Journal, 46: 238253.
Chen, J. J. 2004. Corporatisation of China's state-owned enterprises and corporate governance. Corporate Ownership and Control, 1(2): 8393.
Claessens, S., Djankov, S., Fan, J. P. H., & Lang, L. H. P. 2002. Disentangling the incentive and entrenchment effects of large shareholdings. Journal of Finance, 57: 27412771.
Clarke, D. C. 2003. Corporate governance in China: An overview. China Economic Review, 14: 494507.
CSRC (China Securities Regulatory Commission). 2001. Guidelines for introducing independent directors to the board of directors of listed companies. Beijing: CSRC.
Dalton, D. R., Daily, C. M., Johnson, J. L., & Ellstrand, A. E. 1999. Number of directors and financial performance: A meta-analysis. Academy of Management Journal, 42: 674686.
Delios, A., Wu, Z. J., & Zhou, N. 2006. A new perspective on ownership identities in China's listed companies. Management and Organization Review, 2: 319343.
Demsetz, H. 1986. Corporate control, insider trading, and rates of return. American Economic Review, 76: 313316.
Denis, D. J., Denis, D. K., & Sarin, A. 1999. Agency theory and the influence of equity ownership structure on corporate diversification strategies. Strategic Management Journal, 20: 10711076.
Dharwadkar, R., George, G., & Brandes, P. 2000. Privatization in emerging economies: An agency theory perspective. Academy of Management Review, 25: 650669.
Faccio, M., Lang, L. H. P., & Young, L. 2001. Dividends and expropriation. American Economic Review, 91: 5478.
Fama, E. F. 1980. Agency problems and the theory of the firm. Journal of Political Economy, 88: 288307.
Fama, E. F. 1991. Efficient capital markets: II. Journal of Finance, 46: 15751617.
Gedajlovic, E. R., & Shapiro, D. M. 1998. Management and ownership effects: Evidence from five countries. Strategic Management Journal, 19: 533553.
Goodstein, J., Gautam, K., & Boeker, W. 1994. The effects of board size and diversity on strategic change. Strategic Management Journal, 15: 241250.
Greene, W. H. 1993. Econometric analysis. New York: Macmillan.
Grossman, S. J., & Hart, O. D. 1980. Takeover bids, the free-rider problem, and the theory of the corporation. Bell Journal of Economics 11: 4264.
Guillén, M. F. 2000. Corporate governance and globalization: Is there convergence across Countries? In Cheng, J. L. C. & Peterson, R. B. (Eds.), Advances in international comparative management, Vol. 13: 175204. Greenwich, Conn.: JAI Press.
Guillén, M. F. 2001. The limits of convergence: Globalization and organizational change in Argentina, South Korea, and Spain. Princeton N.J.: Princeton University Press.
Hay, D. A., & Morris, D. J. 1979. Industrial economics: Theory and evidence. Oxford: Oxford University Press.
Holmstrom, B., & Tirole, J. 1993. Market liquidity and performance monitoring. Journal of Political Economy, 101: 678709.
Holz, C. A. 2007. Have China scholars all been bought? Far Eastern Economic Review, 170(3): 3640.
Hoskisson, R. E., Eden, L., Lau, C. M., & Wright, M. 2000. Strategy in emerging economies. Academy of Management Journal, 43: 249267.
Huang, Y., & Khanna, T. 2003. Can India overtake China? Foreign Policy, 137: 7481.
Jensen, M. C. 1986. Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review, 76: 323329.
Jensen, M. C., & Meckling, W. H. 1976. Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3: 305360.
Johnson, J. L., Daily, C. M., & Ellstrand, A. E. 1996. Boards of directors: A review and research agenda. Journal of Management, 22: 409438.
Kogut, B., & Singh, H. 1988. The effect of national culture on the choice of entry mode. Journal of International Business Studies, 19: 411432.
Kosnik, R. D. 1990. Effects of board demography and directors’ incentives on corporate greenmail decisions. Academy of Management Journal, 33: 129150.
La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. 1999. Corporate ownership around the world. Journal of Finance, 54: 471517.
La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. 2000. Investor protection and corporate governance. Journal of Financial Economics, 58: 327.
Lane, P. J., Cannella, A. A. Jr, & Lubatkin, M. H. 1998. Agency problems as antecedents to unrelated mergers and diversification: Amihud and Lev reconsidered. Strategic Management Journal, 19: 555578.
Lins, K. V., & Servaes, H. 2002. Is corporate diversification beneficial in emerging markets? Financial Management, 31(2): 531.
Nee, V. 1992. Organizational dynamics of market transition: Hybrid forms, property rights, and mixed economy in China. Administrative Science Quarterly, 37: 127.
Nee, V., Opper, S., & Wong, S. 2007. Developmental state and corporate governance in China. Management and Organization Review, 3: 1953.
Peng, M. W. 2004. Outside directors and firm performance during institutional transitions. Strategic Management Journal, 25: 453471.
Peng, M. W., & Luo, Y. 2000. Managerial ties and firm performance in a transition economy: The nature of a micro-macro link. Academy of Management Journal, 43: 486501.
Peng, M. W., Zhang, S., & Li, X. 2007. CEO duality and firm performance during China's institutional transitions. Management and Organization Review, 3: 205225.
Shleifer, A., & Vishny, R. W. 1986. Large shareholders and corporate control. Journal of Political Economy, 94: 461488.
Shleifer, A., & Vishny, R. W. 1991. Takeovers in the 60s and the 80s: Evidence and implications. Strategic Management Journal, 12 (Winter Special Issue): 5159.
Shleifer, A., & Vishny, R. W. 1997. A survey of corporate governance. Journal of Finance, 52: 737783.
Thomsen, S., & Pedersen, T. 2000. Ownership structure and economic performance in the largest European companies. Strategic Management Journal, 21: 689705.
Tsui, A. S. 2006. Contextualization in Chinese management research. Management and Organization Review, 2: 113.
Tuschke, A., & Sanders, W. G. 2003. Antecedents and consequences of corporate governance reform: The case of Germany. Strategic Management Journal, 24: 631649.
Ugurlu, M. 2000. Agency costs and corporate control devices in the Turkish manufacturing industry. Journal of Economic Studies, 27: 566599.
Walsh, J. P., & Seward, J. K. 1990. On the efficiency of internal and external corporate control mechanisms. Academy of Management Review, 15: 421458.
Xu, D., & Shenkar, O. 2002. Institutional distance and the multinational enterprise. Academy of Management Review, 27: 608618.
Xu, X., & Wang, Y. 1999. Ownership structure and corporate governance in Chinese stock companies. China Economic Review, 10: 7598.
Yoshikawa, T., & Phan, P. H. 2001. Alternative corporate governance systems in Japanese firms: Implications for a shift to stockholder-centered corporate governance. Asia Pacific Journal of Management, 18: 183205.
Yoshikawa, T., & Phan, P. H. 2005. The effects of ownership and capital structure on board composition and strategic diversification in Japanese corporations. Corporate Governance: An International Review, 13: 303312.
Yoshikawa, T., Phan, P. H., & David, P. 2005. The impact of ownership structure on wage intensity in Japanese corporations. Journal of Management, 31: 278300.
Young, M. N., & McGuinness, P. B. 2001. The missing link: Why stock markets have been ineffective in Chinese SOE reform. Business Horizons, 44(4): 5562.
Young, M. N., Ahlstrom, D., & Bruton, G. D. 2004. The globalization of corporate governance in East Asia: The ‘transnational’ solution. Management International Review, 44(2): 3150.
Young, M. N., Peng, M. W., Ahlstrom, D., Bruton, G. D., & Jiang, Y. 2008. Corporate governance in emerging economies: A review of the principal-principal perspective. Journal of Management Studies, 45: 196220.
Zajac, E. J., & Westphal, J. D. 1994. The costs and benefits of managerial incentives and monitoring in large U.S. corporations: When is more not better? Strategic Management Journal, 15 (Winter Special Issue): 121142.


Related content

Powered by UNSILO

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

  • Yiyi Su (a1), Dean Xu (a2) and Phillip H. Phan (a3)


Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed.