The Impact of Agency Problems on Corporate Performance in China

Abstract

This paper delves into the intricate dynamics of the horizontal agency problem within the realm of corporate governance in China, scrutinizing the inherent conflict of interest between controlling and minority shareholders amidst a backdrop of concentrated ownership. Its core objective is to comprehensively grasp the repercussions of this agency dilemma on firm value and corporate performance. Central to this investigation is the identification and analysis of institutional features that fuel the agency predicament, notably the pre-existing split-share structure and the prevalent establishment of pyramid ownership arrangements. In response to these challenges, this study advocates for two primary approaches to mitigate the agency conundrum: an informal approach driven by cultural factors, particularly rooted in Confucian ethics, and a formal strategy entailing robust legal safeguards and regulatory frameworks. The potential efficacy of these proposed measures in ameliorating conflicts of interest, curbing unethical conduct, and fortifying the rights of minority stakeholders, all while reducing agency costs and enhancing corporate performance.