Purpose This paper aims to examine whether and how ownership structure and corporate governance have bearings on the investment efficiency of Chinese listed firms. Design/methodology/approach The authors measure the investment efficiency by following the work of Richardson (2006) and classify listed firms into two categories: state-owned enterprises (SOEs) and private firms. OLS regressions with both industry and year fixed effects are used to investigate the effect of ownership structure and governance mechanisms on the listed firms’ investment efficiency. Findings The authors find that ownership concentration has a negative impact on investment efficiency, and this effect is more pronounced in SOEs than in private firms. In addition, adoption of incentive-based compensation helps improve investment efficiency. Compared with other types of institutional investors, mutual funds are more likely to exert a positive effect on the investment efficiency of investee companies. Originality/value This paper examines the monitoring effect of governance mechanisms in China from a new perspective, which is the investment efficiency. Furthermore, previous studies provide minimal evidence indicating any effect of incentive-based compensation on firm performance in China. This study provides empirical evidence on this effect by using incentive-based compensation (whether CEOs have been granted stock options) as an explanatory variable in the regression models.

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Manuscript Type: EmpiricalResearch Question/Issue: Previous studies have reported the relationship between corporate governance and corporate liquidity (cash holdings). Factors affecting corporate governance, such as securities laws and control of corruption, should have bearing on corporate liquidity and its value. This study focuses on national-level predictors of cash holdings such as securities laws and control of corruption and examines their impact on corporate liquidity, as well as its value from the agency perspective.c org_823 3..24 Research Findings/Insights: Using comprehensive data on 47 countries from 1996-2007, this study demonstrates that when benchmark variables are controlled, corporate liquidity is lower in countries with more effective securities laws or higher control of corruption. In addition, cash can increase firm value. This positive relation is more pronounced in countries with effective securities laws or high control of corruption. Furthermore, excess cash can reduce firm value in countries with ineffective securities laws or low control of corruption as opposed to other countries; however, this value-reducing effect can be mitigated or reversed when control of corruption or securities laws improve. Theoretical/Academic Implications: This study establishes that securities laws and control of corruption, in addition to the traditional cash determinants, play important roles in determining corporate liquidity and its value, and should therefore not be ignored in future liquidity studies. In addition, securities laws and control of corruption reinforce each other in the reduction of internal agency problems. Furthermore, this study provides empirical support for agency theory to explain corporate cash holdings. Practitioner/Policy Implications: Multinational firms should consider the potential impact of different securities laws and control of corruption of foreign countries in deciding the amount of cash to hold. Results suggest that firms should decrease target cash level in countries with more effective securities laws or higher control of corruption because investor protection is stronger, and the agency problem is less severe. In addition, excess cash should not be held in countries with ineffective securities laws or low control of corruption because these circumstances can reduce firm value, unless these countries substantially improve their control of corruption or securities laws. As for policy makers, caution has to be exercised when improving securities laws or repressing corruption; the concurrent improvement of both is more effective for stronger investor protection and better corporate governance.

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This study examines the impact of the ratification of the Kyoto Protocol on the capital structure of nonfinancial firms in 45 countries from 2002 to 2007. Results show that in general, the Protocol ratification has a negative impact on the leverage of firms. Such negative impact is apparent in developed than in developing countries. Furthermore, this negative impact is reinforced by a market-based, as opposed to bank-based, financial system. Lastly, results suggest that the Protocol ratification has reduced agency costs for firms in developed as opposed to developing countries. Results provide policy implications. In general, firms in ratifying countries should reduce leverage in response to stricter climate-related regulations as they undergo transition toward becoming environment friendly. Such leverage reduction should be more pronounced in developed than in developing countries. Firms in ratifying countries with market-based financial system should reduce leverage more than those in ratifying countries with bank-based financial system should. Finally, results suggest that it is beneficial for developed countries to commit to becoming environmentally liable by joining the global effort to combat climate change because the Protocol ratification appears to mitigate agency problems for firms in developed countries.