Topic: The Bright Side of State Ownership: Preventing Corporate Misconduct

Speaker: Prof. SHI Wei, Kelley School of Business, Indiana University

Host: Prof. LIU Jingjiang

Time: 12:15-13:15 December 8th, 2016 (Thursday)

Venue: Room 1002

Abstract: Agency theorists argue that state ownership is a source of principal-principal (PP) conflicts. This study unpacks one mechanism that state ownership may serve the interests of minority shareholders through preventing corporate misconduct. We posit that the institutional logic of state socialism underlying state ownership deemphasizes profit-maximizing but emphasizes political and social accountability. Because performance pressure can sow the seed of corporate misconduct, firms with high state ownership governed by the logic of state socialism are less prone to engage in corporate misconduct. We propose two channels through which state ownership attenuates corporate misconduct: (1) alleviating performance pressure and (2) disciplining managers associated with corporate misconduct. We also contend that privatization reforms can weaken the negative influence of state ownership on corporate misconduct. Using a sample of Chinese public firms, we find empirical support for our arguments.