Empirical Analysis of Corporate Governance Effect of the Split Share Structure Reform
|Keywords||Split share reform Corporate governance Liquidity|
In2005, China’s Securities Regulatory Commission decided to perform the split share reform. And this reform has aroused great concerns about the compensation ration and performance of the reform. Through utilizing the agency costs as the proxy of the governance problems, we find a significant decrease in agency costs and a significant performance improvement after reform. Because better performance is always relevant with improved governance, we examine the relationship between improved performance and lower agency costs. And we find that improved performance is significantly related with the lower agency costs, especially the first agency cost.Another key point of this paper is the reform process. The survey on the reform process mainly focuses on two aspects. The first one is the effect of reform process variables on the agency cost changes and performance changes before and after the reform, and we find that the process variables indeed affect the governance effect. The second one is that we construct the conflict shareholder index based on the relevant variables of the process and find that serious shareholders conflicts themselves are the signal of the serious agency problems. Afterwards, we divide the whole sample based on the shareholder conflicts index, and find that the reform brings about greater decrease in agency costs and greater increase in performance for the corporations with more serious shareholder conflicts.Why did the reform reduce agency cost? As for this problem, we test the liquidity theory of governance in the background of the China’s split share reform, liquidity brought by the reform do not lead to controlling shareholders weakening supervision. The institutional investors channel in the new voice theory can explain reduction of the first kind of agency cost. The quasi-exit method that non-tradable shareholders compensate medium and small shareholders and institutional investor channel simultaneously reduce the second type of agency costs. The liquidity caused by the reform reduces agency cost through these channels and improves firm performance. The effect that institutional investor channel reduces the first type of agent cost and enhance the performance is obvious, which indicates that the reform improved price mechanism, regulated market behaviors and made the corporate governance better.In addition, we also examine the geographical characteristics and time features of the reform. The reform process has apparent district feature. The process that government carries out the reform is firstly demonstration and then promotion, firstly Eastern and then Midwest, east drives center and west. Besides, we also examine the corporations that do not actively carry out the reform and find that they themselves have severe agency problem. However, after the reform, they benefit more greatly both on the governance and performance perspective.The study in this paper has guiding significance on the practice of policy and reform. Why do not some companies response to national policy of early reform? Why do some companies encounter greater resistance in the share split reform process? This is signal that serious agency problem exists. After the success of the reform, the biggest beneficial group are these companies. This shows that if problems are encountered in the process of the reform, we should strengthen our determination and solve problems in the reform so as to bring stable performance improvement and obvious governance optimization. In addition, agency cost problems exist in this kind of companies. Therefore, in the overall implementation of completion, we should mainly monitor companies in the later stage and company with serious shareholders conflicts, asses their risk and supervise them to reduce the agency cost. To strengthen firm’s determination is the necessary condition to implement the reform. In different stages of reform, grasping the policy key point intensity and rhythm is essential. Only in this way can we achieve the goal of reform.