Entreched Boards in New Public Firms: An Empirical Study of Chinese IPOs

Basyith, Abdul and Fitriya, Fitriya and Idris, Muhammad (2013) Entreched Boards in New Public Firms: An Empirical Study of Chinese IPOs. In: International Research Conference on Business and Economics, 28-30 June 2013, Semarang, Indonesia.

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Abstract

This study empirically investigates the impact of managerial entrenchment on firm financial performance of Chinese firms' Initial Public Offering (IPOs). Using 142 firms listed in the Shenzen Stock Exchange, this study uses two proxies to measure firm performance and three proxies to measure managerial entrenchment. The two proxies for firm performance are Tobin's Q and ROA, and the three proxies for managerial entrenchment are derived from the principal component analysis (PCA). This study confirms that the data is linear and no normality for Tobins' Q is the GLS and the OLS between estimators for ROA. The regression result for Tobin's Q reveals that managerial entrenchment negatively impacts on firm performance. The results are in contradiction with the stewardship theory for new firms, whereas it is positive for the managerial entrenchment for new firms. In contrast, the regression result for ROA reveals that managerial entrenchment has a positive impact on firm performance; however, only one entrenchment proxy yields a significant coefficient. The results are in line with the stewardship theory for new firms, whereas the managerial entrenchment for new firms is positive. Even though the two proxies used yield inconclusive results, this study confidently affirms that Tobin's Q has more power in explaining the financial performance of new public firms, as Tobin's Q reflected a market measure rather that accounting measure. In conclusion, the negative results of entrenchment proxies were caused by the different institutional structures and legal systems, namely that Chinese corporations are still largely owned and controlled by the state, and hence the centralised state control was responsible for particular managerial actions. This study provides recent evidence for managerial entrenchment's impact on firm performance in Chinese Firms IPOs context. It is interesting to examine the degree of managerial entrenchment in new Chinese firms, because China is playing a very important role in establishing the modern enterprise system in the world, and is one of the largest market economies. Further, the method used in this study is more robust that prior research, as entrenchment proxies were derived using the PCA.

Item Type: Conference or Workshop Item (Paper)
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Law, Arts and Social Sciences > School of Management
Depositing User: Mr Abdul Basyith
Date Deposited: 19 Dec 2017 02:55
Last Modified: 19 Dec 2017 02:55
URI: http://eprints.binadarma.ac.id/id/eprint/3604

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