Reducing Symbolic Compliance: The Presence of Multiple Large Shareholders as an Internal Monitoring Mechanism

Author:

Li Weiwen1,Zhang Yan ‘Anthea’2,Li Xinchun1

Affiliation:

1. Sun Yat‐Sen University

2. Rice University

Abstract

AbstractWe propose that in a context where corporate ownership is concentrated, the controlling shareholder of a firm tends to symbolically comply to regulatory requirements that aim to protect minority shareholders; yet the presence of multiple large shareholders can serve as an internal monitoring mechanism that can reduce symbolic compliance. We test this argument through examining firm responses to a regulatory requirement regarding independent accounting director appointments in China. Using data on China's listed non‐state‐owned enterprises, we find that the presence of multiple large shareholders decreases the likelihood of symbolic compliance, and this negative effect is stronger when noncontrolling large shareholders have low incentives to collude with the controlling shareholder. We also find that a firm engaging in symbolic compliance tends to have a greater level of tunnelling (by the largest shareholder) and earnings management. Our study contributes to the literature on symbolic management in an institutional setting where ownership is concentrated.

Publisher

Wiley

Subject

Management of Technology and Innovation,Strategy and Management,Business and International Management

Reference70 articles.

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