Managerial ownership and financial distress: evidence from the Chinese stock market

Yuan George Shan, Indrit Troshani, Jimin Wang, Lu Zhang

Research output: Contribution to journalArticlepeer-review

Abstract

Purpose: This study investigates the convergence-of-interest and entrenchment effects on the relationship between managerial ownership and financial distress using evidence from the Chinese stock market. It also analyzes whether the relationship is mediated by research and development (R&D) investment.
Design/methodology/approach: Using a dataset consisting of 19,059 firm-year observations of Chinese listed companies in the Shanghai and Shenzhen Stock Exchanges between 2010 and 2020, this study employs both piecewise and curvilinear models.
Findings: Our results indicate that managerial ownership has a negative association with firm financial distress in both the low (below 12%) and high (above 18%) convergence-of-interest regions of managerial ownership, suggesting that managerial ownership in this region may contribute to improve firm financial status. Meanwhile, managerial ownership has a positive association with firm financial distress in the entrenchment region (12%–18%), implying that managerial ownership in the entrenchment region may contribute to impair firm financial status. Furthermore, our results show that R&D investment mediates the association between managerial ownership and financial distress.
Originality: This study is the first to provide evidence of a nonlinear relationship between managerial ownership and financial distress, and identify the entrenchment region in the Chinese setting.
Original languageEnglish
Pages (from-to)192-221
Number of pages30
JournalInternational Journal of Managerial Finance
Volume20
Issue number1
Early online date22 May 2023
DOIs
Publication statusPublished - 5 Jan 2024

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