Can the exit threat of non-controlling major shareholders promote corporate innovation?

ABSTRACT

Chinese listed companies recently come out a set of serious agency problems. For example, directors and controlling shareholders highly override company interests. Conventional governance methods such as introducing non-executive directors couldn't effectively solve this problem. The proposal of encouraging non-controlling major shareholders to actively participate in corporate decision-making becomes more popular nowadays. This paper studies the mechanism of non-controlling major shareholders’ exit threat on corporate innovation, and explore the impact of property rights and corporate life cycles on this mechanism. The result shows the exit threat of non-controlling major shareholders did not promote corporate innovation. This is mainly because major shareholders pursue short-term benefits and tend to support financial asset investment rather than R&D investment. Our research also come out that the inhibitory effect of the exit threat of non-controlling major shareholders on corporate innovation is more significant for non-state-owned and mature enterprises in China. This article finds Chinese capital market investors pay more attention to short-term interests and lack the long-term value investment awareness, which is not conducive to the long-term development of enterprises.

KEYWORDS:

• Non-controlling majorshareholders
• exit threat
• corporate innovation
• financial asset

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This work was supported by National Natural Science Foundation of China: [Grant Number 71972002,71872001]; the MOE Project of Humanities and Social Sciences: [Grant Number 18YJC630209]; National Social Science Fund of China: [Grant Number 20BGL070]; the soft science project of Xianning Science and Technology Bureau: [Grant Number 2019kj14]; doctoral initiation fund project of Hubei University of Science and Technology: [Grant Number BK2020222].

Notes on contributors

Chaohui Xu

Chaohui Xu is an associate professor in School of economics and management, Hubei University of Science and Technology. He received the Ph.D. in management science and engineering at University of Electronic Science and Technology of China in 2017. His research interests are in Data Mining and Corporate Finance.

Yingjie Xu

Yingjie Xu received the M.S. degree in Trinity Business School, Trinity College Dublin, Dublin in 2017. She is currently a PhD student in NanKai University Business School. She has successfully obtained the ACCA certificate, ACA certificate and CFA certificate. Her research interests include corporate finance, enterprise innovation. She has published paper in journals of IEEE Access.

Feng’en Li

Feng’en Li is a Master candidate and study in Financial engineering at the School of Software &Microelectronics, Peking University. His research interests include allocation of financial resources and artificial intelligence. He has published paper in journals of IEEE Access.