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Ultimate parent board reform and corporate overinvestment: a quasi‐natural experiment study
Author(s) -
Xie Sujuan,
Xu Yue,
Zeng Yamin,
Zhang Junsheng
Publication year - 2019
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12443
Subject(s) - subsidiary , shareholder , business , corporate governance , incentive , natural experiment , government (linguistics) , accounting , state ownership , state owned , finance , market economy , economics , emerging markets , linguistics , statistics , philosophy , mathematics , multinational corporation
Using government‐led board reform as a quasi‐natural experiment, we find that board reform at Chinese state controlling shareholders significantly alleviates overinvestment at their listed subsidiaries. The positive role of board reform in reducing overinvestment is stronger when state controlling shareholders have weak incentive to expropriate listed subsidiaries, or they can better monitor the listed subsidiaries through assigned top management. Furthermore, we find that board reform further reduces managerial cost at their listed subsidiaries. Overall, our findings suggest that government‐led board reform enhances internal governance at state controlling shareholders and has a positive effect on investment policy at their listed subsidiaries.