Cross-shareholding network and internal control quality

ABSTRACT

This paper investigates the relationship between cross-shareholding networks and internal controls quality using a sample of all listed A-share firms in China during 2007–2020. We find that the higher the centrality of cross-shareholding networks, the lower the quality of internal control. This finding passes a series of robustness regressions. Moreover, we further test the influence channel of cross-shareholding on the internal control quality and find that the agency cost is the corresponding intermediary. That is, the cross-shareholding network increases the agency cost of the firm and thus reduces the quality of internal control.

KEYWORDS:

• Cross-shareholding network
• Internal control quality
• Centrality
• Agency cost

JEL CLASSIFICATION:

• G18
• G32
• G39
• L14
• M41

Disclosure statement

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