Multiple large shareholders and absinvestment among Chinese listed firms

Yan, Caiyu; Li, Juan

doi:10.7819/rbgn.v25i2.4220

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Article • Rev. Bras. Gest. Neg. 25 (2) • Apr-Jun 2023 • https://doi.org/10.7819/rbgn.v25i2.4220 copy

Multiple large shareholders and absinvestment among Chinese listed firms

Authorship SCIMAGO INSTITUTIONS RANKINGS

Abstract

Purpose

This study employees cash flow rights and the contestability of multiple large shareholders to explore the impact of multiple large shareholders on investment efficiency in Chinese setting.

Theoretical framework

We introduce Asymmetric Information Theory and Theory of Principal and Agent o support our study.

Design/methodology/approach

Empirical study (including PSM method, IV method, threshold method and so on) is used in this study. Moreover, this paper selects the non-financial listed companies of A share enlisted in both the Shanghai and the Shenzhen Stock Markets from the period of 2007 to 2016 as the sample.

Findings

Our findings show a positive correlation between multiple large shareholders and absinvestment among Chinese listed firms.

Practical & social implications of research

Different from the previous views that multiple large shareholders have positive governance effects, we provide evidence that multiple large shareholders have negative governance effects. And we provide new evidence that controlling shareholders would collude with multiple large shareholders to seek for excess private benefits by enhancing enterprise absinvestment.

Originality/value

This study contributes to the literature in several important ways. First, it shows a positive correlation between multiple large shareholders and absinvestment, which extends the research of Jiang et al. (2018), which found that multiple large shareholders can profoundly enhance investment efficiency. Second, this paper is the first to introduce a threshold model to study the impact of controlling shareholders on the relation between multiple large shareholders and absinvestent, demonstrating that the positive relation between them is strengthened by promoting the governance effect of controlling shareholders.

Keywords:
Multiple large shareholders; controlling shareholders; absinvestment; collusion; threshold model

Categories	Variable	Symbol	Definition
Dependent variables	Absinvestment	Absinvestment	Absinvestment = the absolute value of the residuals in model 2
	Over-investment	Over-investment	Over-investment = the positive value of the residuals in model 2
	Under-investment	Under-investment	Under-investment= the negative value of the residuals in model 2
Independent variables	Cash flow right of multiple large shareholders	CF3	CF3 = shareholding ratio of the second and third largest shareholders (not related with controlling shareholders)
	Contestability of control right	Contest3	Contest3 = shareholding ratio of multiple large shareholders/shareholding ratio of controlling shareholders
	Cash flow rights of the second largest shareholder	CF2	CF2 = shareholding ratio of the second largest shareholder (not related with controlling shareholders)
	Contestability between the second largest shareholder and controlling shareholders	Contest2	Contest2 = shareholding ratio of the second largest shareholder/shareholding ratio of controlling shareholders
	The dummy variable for multiple large shareholders	MLS_dummy	MLS_dummy = 1 if there are multiple large shareholders with a shareholding ratio of more than 5%, otherwise MLS_dummy = 0
Control variables	Firm value	Tobin’s Q	TQ = market value + total liabilities/total assets
	Firm size	Ln_Assets	Ln_Assets = natural logarithm of total assets
	Asset-to-liability ratio	Leverage	Leverage = total liabilities/total assets
	Years listed	Age	Age = natural logarithm of years listed of a listed firm
	Firm growth	Growth	Growth = growth rate of sales revenue
	Free cash flow	FCF	FCF = natural logarithm of free cash flow
	Firm nature	State	State = 1 if the ultimate owner of the listed firm is the State or a state-owned shareholder), otherwise State = 0
Moderating variables	Cash flow rights of controlling shareholders	CS	CS = shareholder ratio of the largest shareholder
Moderating variables	Affiliated director of controlling shareholders	ABCS	ABCS = number of affiliated directors of controlling shareholders/board size
	The degree of separation between the ownership and controlling rights of controlling shareholders	Separation	Separation = the controlling rights of controlling shareholders - the ownership rights of controlling shareholders

	Mean	Std.dev	1	2	3	4	5	6	7	8	9	10	11	12
1 Absinvestment	3.450	4.611	1.000
2 CF3	8.123	7.553	0.069	1.000
3 Contest3	29.823	35.020	0.059	0.833	1.000
4 Tobin’s Q	2.493	2.592	0.119	0.078	0.117	1.000
5 FCF	4.342	9.099	-0.030	0.008	-0.026	0.011	1.000
6 Age	2.604	0.349	-0.042	-0.058	-0.012	0.019	-0.075	1.000
7 CS	37.676	15.885	-0.036	-0.314	-0.560	-0.121	0.083	-0.098	1.000
8 ABCS	27.246	18.084	-0.026	-0.221	-0.298	-0.086	0.035	0.030	0.356	1.000
9 Growth	2.072	149.213	-0.001	0.013	0.004	-0.005	-0.015	0.007	0.011	-0.004	1.000
10 Leverage	52.405	49.454	-0.019	-0.012	-0.018	0.320	-0.053	0.020	0.014	0.011	0.008	1.000
11 Ln_Assets	22.147	1.283	-0.098	-0.059	-0.153	-0.403	0.037	0.133	0.344	0.208	0.022	0.106	1.000
12 State	0.623	0.485	-0.055	-0.091	-0.169	-0.128	0.036	-0.033	0.243	0.200	-0.013	0.021	0.183	1.000

Variable	Dependent variable:Absinvestment
Variable	(1)	(2)	(3)	(4)
CF3	0.059***		0.059***
	(6.315)		(5.933)
Contest3		0.008***		0.008***
		(3.859)		(3.492)
Tobin’s Q			0.242***	0.248***
			(8.237)	(8.441)
FCF			-0.032***	-0.032***
			(-5.832)	(-5.801)
Age			-0.692	-0.882
			(-1.060)	(-1.352)
CS			0.012^* * , , * indicate statistical significance at 10%, 5% and 1%, respectively.	0.010
			(1.671)	(1.322)
ABCS			0.010**	0.009**
			(2.411)	(2.247)
Growth			-0.000	-0.000
			(-0.443)	(-0.366)
Leverage			-0.006***	-0.007***
			(-5.508)	(-5.670)
Ln_Assets			0.210*	0.283**
			(1.897)	(2.575)
State			-0.630***	-0.637***
			(-3.099)	(-3.129)
Cons	2.145**	2.415***	-1.424	-2.250
	(2.473)	(2.786)	(-0.507)	(-0.802)
Industry and year	Yes	Yes	Yes	Yes
Sample size	10120	10120	10120	10120
R2	0.016	0.018	0.031	0.029
F-value	5.12***	6.03***	7.95***	7.31***

	PSM	Dependent variable:Absinvestment
	(1) MLS_dummy	(2) CF3	(3) Contest3
Independent variables		0.031***	0.004^ , *** indicate statistical significance at the 5% and 1%, respectively.
Independent variables		-4.127	-2.359
Tobin’s Q	0.015	0.182***	0.188***
Tobin’s Q	-1.480	-5.903	-6.072
FCF		-0.030***	-0.030***
FCF		(-4.927)	(-4.889)
Age	-0.225***	0.195	0.134
Age	(-2.730)	(0.904)	(0.623)
CS		0.005	0.007
CS		-1.320	-1.496
ABCS		0.002	0.001
ABCS		(0.547)	(0.366)
Growth		-0.001	-0.001
Growth		(-0.623)	(-0.564)
Leverage	-0.001	-0.009***	-0.009***
Leverage	(-0.831)	(-2.805)	(-2.749)
Ln_Assets	-0.124***	-0.116**	-0.123**
Ln_Assets	(-5.980)	(-2.084)	(-2.201)
State		-0.502***	-0.500***
State		(-4.393)	(-4.369)
Cons		4.659***	5.081***
Cons		-3.486	-38.079
Industry and year	Yes	Yes	Yes
Sample size	10120	7114	7114
Pseudo- R² /Adjusted R²	0.018	0.043	0.041
Wald χ²/F-value	241.75***	10.09***	9.75***

	Dependent variable:Absinvestment
	(1) CF3	(2) Contest3
Panel A:first-order lag
IV1-CF3	0.720***
	(17.100)
IV1-Contest3		2.440***
		(13.740)
Panel B:second-order lag
CF3	0.141**
	(2.511)
Contest3		0.042**
		(2.491)
Tobin’s Q	0.192***	0.185***
	(6.058)	(5.518)
FCF	-0.033***	-0.031***
	(-5.881)	(-5.484)
Age	-1.102***	-1.103***
	(-2.971)	(-2.952)
CS	0.030**	0.060**
	(1.989)	(2.255)
ABCS	0.012***	0.014***
	(2.690)	(2.837)
Growth	-0.000	-0.000
	(-0.481)	(-0.273)
Leverage	-0.005***	-0.005***
	(-3.913)	(-3.438)
Ln_Assets	-0.056	-0.050
	(-0.319)	(-0.286)
State	-0.553***	-0.582***
	(-2.732)	(-2.832)
Cons	5.214**	3.843^* * , , * indicate statistical significance at 10%, 5% and 1%, respectively.
	(2.198)	(1.822)
Sample size	10120	10120
R2	0.013	0.017
Wald χ2	6711.34***	6600.44***

Variable	Cut the sample by 10%		Independent variable substitution
Variable	(1)CF3	(2)Contest3	(3)MLS_dummy	(4)CF2	(5)Contest2
Independent variables	0.068***	0.009***	0.650***	0.061***	0.010***
Independent variables	(6.164)	(3.576)	(4.593)	(4.941)	(3.169)
Tobin’s Q	0.258***	0.266***	0.252***	0.248***	0.251***
	(8.215)	(8.432)	(8.578)	(8.431)	(8.526)
FCF	-0.034***	-0.034***	-0.032***	-0.033***	-0.033***
	(-5.635)	(-5.606)	(-5.820)	(-5.849)	(-5.829)
Age	-0.574	-0.778	-0.848	-0.816	-0.926
	(-0.814)	(-1.105)	(-1.300)	(-1.251)	(-1.420)
CS	0.014^* * , , * indicate statistical significance at 10%, 5% and 1%, respectively.	0.012	0.005	0.008	0.008
	(1.798)	(1.398)	(0.655)	(1.151)	(1.069)
ABCS	0.010**	0.009**	0.009**	0.009**	0.009**
	(2.239)	(2.057)	(2.265)	(2.328)	(2.222)
Growth	-0.001	-0.001	-0.000	-0.000	-0.000
	(-0.550)	(-0.250)	(-0.448)	(-0.380)	(-0.341)
Leverage	-0.007***	-0.007***	-0.007***	-0.007***	-0.007***
	(-5.593)	(-5.770)	(-5.745)	(-5.674)	(-5.751)
Ln_Assets	0.169	0.252**	0.279**	0.253**	0.297***
	(1.409)	(2.111)	(2.560)	(2.306)	(2.712)
State	-0.682***	-0.686***	-0.630***	-0.634***	-0.636***
	(-3.064)	(-3.080)	(-3.095)	(-3.116)	(-3.124)
Cons	-0.523	-1.473	-2.107	-1.798	-2.327
	(-0.172)	(-0.485)	(-0.751)	(-0.640)	(-0.829)
Industry and year	Yes	Yes	Yes	Yes	Yes
Sample size	9108	9108	10120	10120	10120
R2	0.033	0.030	0.030	0.030	0.029
F-value	7.39***	6.69***	7.56***	7.65***	7.25***

Variable	OLS		RE		Tobit		WLS
Variable	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)
CF3	0.027***		0.038***		0.027***		0.041***
	(3.256)		(5.126)		(4.255)		(4.884)
Contest3		0.004**		0.006***		0.004***		0.007***
		(3.256)		(3.143)		(2.663)		(3.436)
Tobin’s Q	0.230***	0.230***	0.231***	0.234***	0.230***	0.231***	0.045***	0.050***
	(4.472)	(4.472)	(9.455)	(9.551)	(10.329)	(10.384)	(5.196)	(5.806)
FCF	-0.027^* * , , * indicate statistical significance at 10%, 5% and 1%, respectively.	-0.027*	-0.030***	-0.030***	-0.027***	-0.027***	-0.099***	-0.095***
	(-1.851)	(-1.852)	(-5.794)	(-5.744)	(-5.330)	(-5.277)	(-22.666)	(-21.615)
Age	-0.003	-0.041	-0.029	-0.087	-0.003	-0.041	1.452***	1.398***
	(-0.017)	(-0.234)	(-0.123)	(-0.366)	(-0.017)	(-0.230)	(5.317)	(5.099)
CS	-0.001	-0.001	0.001	0.002	-0.001	-0.000	-0.004	-0.004
	(-0.287)	(-0.017)	(0.338)	(0.480)	(-0.307)	(-0.018)	(-0.741)	(-0.730)
ABCS	0.003	0.003	0.005	0.004	0.003	0.002	0.005	0.003
	(1.124)	(0.955)	(1.579)	(1.392)	(1.083)	(0.916)	(1.138)	(0.700)
Growth	-0.001***	-0.001***	-0.000	-0.000	-0.000	-0.000	0.001	0.001
	(-5.890)	(-5.2061)	(-0.493)	(-0.432)	(-0.623)	(-0.576)	(0.423)	(0.298)
Leverage	-0.005***	-0.005***	-0.006***	-0.006***	-0.005***	-0.005***	-0.001	-0.002*
	(-3.993)	(-4.033)	(-5.340)	(-5.409)	(-4.783)	(-4.812)	(-1.491)	(-1.721)
Ln_Assets	-0.062	-0.056	-0.027	-0.013	-0.062	-0.056	-0.058	0.001
	(-0.968)	(-0.869)	(-0.459)	(-0.216)	(-1.336)	(-1.203)	(-0.889)	(0.016)
State	-0.545***	-0.544***	-0.564***	-0.564***	-0.545***	-0.544***	-0.030	0.053
	(-5.476)	(-5.463)	(-4.577)	(-4.572)	(-5.473)	(-5.453)	(-0.201)	(0.350)
Cons	4.564***	4.579***	3.589***	3.531**	4.564***	4.579***	0.287	-0.516
	(3.015)	(3.028)	(2.603)	(2.559)	(4.173)	(4.181)	(0.185)	(-0.330)
Industry and year	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Sample size	10120	10120	10120	10120	10120	10120	10120	10120
R2	0.045	0.044	0.027	0.025	0.08	0.08	0.115	0.114
F-value (Wald χ2)	10.68***	10.40***	374.54***	357.82***	463.06***	452.07***	35.34***	35.06***

Variable	absinvestment		Variable	absinvestment
	(1)	(2)		(3)	(4)	(5)Separation
	CS	ABCS		CS	ABCS	(5)Separation
Tobin’s Q	0.222***	0.213***	Tobin’s Q	0.220***	0.220***	0.215***
Tobin’s Q	-8.268	-7.943	Tobin’s Q	-8.308	-8.177	-8.014
FCF	-0.032***	-0.033***	FCF	-0.033***	-0.032***	-0.033***
FCF	(-5.862)	(-5.874)	FCF	(-5.879)	(-5.830)	(-5.950)
Age	-1.586***	-1.510***	Age	-1.596***	-1.640***	-1.503***
Age	(-6.511)	(-6.067)	Age	(-6.569)	(-6.631)	(-6.025)
CS		0.012	CS		0.012	0.010
CS		-1.631	CS		-1.615	-1.466
ABCS	0.010**		ABCS	0.009^ , *** indicate statistical significance at the 5% and 1%, respectively.		0.009**
ABCS	-2.504		ABCS	-2.327		-2.187
Growth	-0.001	-0.001	Growth	-0.001	-0.001	-0.001
Growth	(-0.410)	(-0.368)	Growth	(-0.369)	(-0.321)	(0.351)
Leverage	-0.006***	-0.006***	Leverage	-0.006***	-0.006***	-0.006***
Leverage	(-5.278)	(-5.074)	Leverage	(-5.351)	(-5.242)	(-5.021)
Ln_Assets	0.203**	0.137	Ln_Assets	0.203	0.208**	0.150
	-2.002	-1.305		-12.023	-1.988	(1.423)-

State	-0.512**	-0.541***	State	-0.513***	-0.533***	0.485**
State	(-2.551)	(-2.692)	State	(-2.549)	(-2.649)	(-2.409)
CF3I*			Contest3I*
1	0.030**	0.047***	1	0.001	0.006***	0.042***
1	-2.020	-4.521	1	(0.470)	-2.720	-3.700
2	0.199***	0.100***	2	0.020***	0.022***	0.091***
2	-8.886	-7.662	2	-7.185	-6.283	-7.722
3	0.057***	0.357***	3		0.103***
3	-5.804	-4.335	3		-3.107
Sample size	10120	10120	Sample size	10120	10120	10120
R2	0.028	0.026	R2	0.024	0.023	0.024
F-value	23.82***	21.61***	F-value	22.45***	19.26***	20.73***

Variable	State-owned firm		Non-state-owned firm
Variable	(1)	(2)	(3)	(4)
CF3	0.037***		0.096***
	(2.901)		(5.325)
Contest3		0.006^* * , , * indicate statistical significance at 10%, 5% and 1%, respectively.		0.011***
		(1.668)		(2.804)
Tobin’s Q	0.184***	0.186***	0.196***	0.215***
	(4.130)	(4.170)	(4.101)	(4.508)
FCF	-0.049***	-0.049***	-0.009	-0.009
	(-6.998)	(-6.985)	(-0.984)	(-0.950)
Age	-0.363	-0.465	-1.215	-1.557
	(-0.511)	(-0.655)	(-0.848)	(-1.084)
CS	-0.003	-0.006	0.031**	0.029**
	(-0.286)	(-0.569)	(2.577)	(2.209)
ABCS	0.010**	0.010**	0.011	0.010
	(2.182)	(2.097)	(1.376)	(1.196)
Growth	-0.001	-0.000	-0.000	-0.000
	(-0.368)	(-0.219)	(-0.388)	(-0.337)
Leverage	-0.019***	-0.020***	-0.005***	-0.005***
	(-3.684)	(-3.833)	(-3.108)	(-3.443)
Ln_Assets	0.232	0.272*	0.348*	0.468**
	(1.641)	(1.928)	(1.776)	(2.402)
Cons	0.024	-0.305	-6.151	-7.541
	(0.007)	(-0.086)	(-1.159)	(-1.418)
Industry and year	Yes	Yes	Yes	Yes
Sample size	6301	3819	6301	3819
R2	0.036	0.035	0.040	0.034
F-value	6.05***	5.88***	3.96***	3.33***

Variable	Over-investment		Under-investment
Variable	(1)	(2)	(3)	(4)
CF3	0.081***		0.018
	(4.360)		(1.488)
Contest3		0.011***		0.003
		(2.753)		(0.869)
Tobin’s Q	0.200***	0.215***	0.205***	0.206***
	(2.765)	(2.963)	(6.633)	(6.653)
FCF	0.018	0.019^* * , , * indicate statistical significance at 10%, 5% and 1%, respectively.	-0.053***	-0.053***
	(1.597)	(1.705)	(-8.662)	(-8.684)
Age	0.317	0.021	-1.152	-1.201
	(0.244)	(0.016)	(-1.568)	(-1.636)
CS	0.018	0.016	-0.002	-0.003
	(1.308)	(1.129)	(-0.254)	(-0.305)
ABCS	0.007	0.006	0.009**	0.009**
	(0.909)	(0.781)	(2.044)	(2.004)
Growth	-0.000	-0.000	-0.010	-0.009
	(-0.367)	(-0.261)	(-0.815)	(-0.726)
Leverage	-0.031***	-0.034***	-0.005***	-0.005***
	(-3.797)	(-4.109)	(-4.810)	(-4.830)
Ln_Assets	1.027***	1.139***	-0.488***	-0.468***
	(4.800)	(5.382)	(-3.777)	(-3.644)
State	-0.389	-0.402	-0.519**	-0.521**
	(-0.989)	(-1.021)	(-2.260)	(-2.269)
Cons	-18.657***	-19.901***	13.949***	13.731***
	(-3.464)	(-3.696)	(4.307)	(4.246)
Industry and year	Yes	Yes	Yes	Yes
Sample size	4291	4291	5829	5829
R2	0.040	0.037	0.056	0.055
F-value	3.92***	3.58***	7.64***	7.60***

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