The Value of Trading Rights, Agency Costs and Ownership Structure: Evidence from the Nontradable Shares Reform in China

摘要

The split structure in the Chinese stock market causes a special case of separation of control rights from cash flow rights, thus controlling shareholders only undertake a minority proportion of negative corporate consequences. While controlling shareholders don't have trading rights before nontradable shares reform, they may engage in expropriating activities that would compensate for the lack of trading rights but don't care too much about stock volatility as long as idiosyncratic risks are controlled within safe range. This paper uses a special dataset that includes information about companies participating in the Chinese nontradable shares reform and investigate the change of agency costs using different proxies that would distinguish different motivations for tunneling. The findings show the scope of agency problems, test the value of trading rights and provide evidence that supports for the changes in corporate governance of companies after this financial reform and also contribute to the privatization literatures.