Cross-owners as monitors: more supervisory or distracted? Evidence from China

ABSTRACT

In recent decades, cross-ownership becomes a rapidly growing phenomenon in capital markets across various countries. However, there remains an absence of consensus regarding the efficacy of cross-shareholders in monitoring within the realm of corporate governance. This study delves into this quandary by employing regression analysis on data spanning the years 2007–2018 from Chinese listed firms. Our findings reveal that cross-ownership significantly mitigates agency costs, a conclusion robustly supported through a battery of tests. Key mechanisms driving this phenomenon include information advantage and governance experience, facilitated through channels such as increased shareholding and director appointments. Notably, this positive effect is more pronounced in non-state firms, firms with less concentrated ownership, greater analyst attention, and less trustworthy auditors. In sum, our results underscore the constructive role played by cross-owners in fortifying corporate governance structures.

KEYWORDS:

• Cross-ownership
• agency costs
• information advantage
• governance experience

JEL CLASSIFICATION:

• G32
• G34
• G15

Disclosure statement

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

Supplementary material

Supplemental data for this article can be accessed online at https://doi.org/10.1080/00036846.2024.2324848

Notes

¹ Before 2011, the assessment results of the Shenzhen Stock Exchange are expressed as ‘Excellent, Good, Pass and Fail’, which are regarded as ‘A, B, C and D’ respectively in this paper, thus assigning a uniform value to the assessment results of all years.

Additional information

Funding

The work was supported by the Natural Science Foundation of China (Beijing, China) [72202073]; Humanities and Social Science General Program (Beijing, China) [21YJC630125]; Social Sciences Planning Project of Guangdong Province (Guangzhou, China) [GD22XGL10]; Guangdong Basic and Applied Basic Research Foundation (Guangzhou, China) [2021A1515110150]. Xudong Tang acknowledges the financial support from the Fundamental Research Funds for the Central Universities and the Talent Cultivation Funds for the “Double first-class” Construction Project of South China University of Technology.