Multiple large shareholders and leverage adjustment: New evidence from Chinese listed firms. Issue 12 (26th September 2022)

• Record Type: Journal Article
• Authors: Wang, Zhixiao; Wang, Qin
• Is Part Of: Emerging markets finance & trade. Volume 58:Issue 12(2022)
• Page Start: 3487
• Page End: 3503
• Publication Date: 2022-09-26
• Subjects: Capital structure -- leverage adjustment speed -- multiple large shareholders; G32 -- G30 -- G34; Balkan Peninsula -- Commerce -- Periodicals; Balkan Peninsula -- Foreign economic relations -- Periodicals; Europe, Central -- Commerce -- Periodicals; Europe, Central -- Foreign economic relations -- Periodicals; Europe, Eastern -- Commerce -- Periodicals; Europe, Eastern -- Foreign economic relations -- Periodicals; Turkey -- Commerce -- Periodicals; Turkey -- Foreign economic relations -- Periodicals; Asia -- Commerce -- Periodicals; Asia -- Foreign economic relations -- Periodicals; Eurasia -- Commerce -- Periodicals; Eurasia -- Foreign economic relations -- Periodicals; 382.05
• DOI: 10.1080/1540496X.2022.2051812
• Languages: English
• ISSNs: 1540-496X

Abstract

ABSTRACT: In this paper, we use a dataset of Chinese-listed firms to explore the potential value-enhancing or value-destroying role of multiple large shareholders in determining dynamics of capital structure decisions of firms. We estimate a modified partial adjustment model of leverage and find that firms with multiple large shareholders present a lower speed of leverage adjustment. The relatively more convincing explanation is that the high coordination costs among large shareholders can weaken the efficiency of monitoring managers who have incentives to deviate capital structure dynamics from the optimal strategy. In further analysis, we show that the negative impact of multiple large shareholders on speed of leverage adjustment is much weaker when managerial compensation is more tied to firm performance. Overall, this study provides new empirical evidence to underline the potential value-destroying role of multiple large shareholders and emphasizes the importance of firms improving their corporate governance mechanisms to mitigate the potential negative impact of ownership dispersion.