| Summary: | Multiple Large Shareholder Structure (MLSS) has been proposed as an effective corporate governance mechanism limiting expropriation of minority shareholders by controlling shareholders (e.g., Maury and Pajuste, 2005). However, there is a counter argument suggesting that large shareholders may collude and expropriate minority interests more. In particular, evidence on the impact of MLSS on firms corporate governance is limited. Especially there is no systematic investigation on the role of MLSS in Chinese listed companies where the MLSS is prominent. In this thesis, I propose to investigate whether the MLSS can work as an effective corporate governance mechanism for limiting minority expropriations. To this end, I focus on the following three research questions: Does MLSS improve firm value? Does MLSS alleviate agency costs?, Do non-controlling large shareholders (NCLS) exercise their influence through board representation? Using hand-collected MLSS data for a panel of Chinese listed companies during Z003 to 2005, this thesis produces the following important findings. First, it documents two contrasting roles of the MLSS on firm value, namely monitoring and collusion effect's. Measuring the MLSS by the size of shareholding of the NCLS .relative to the controlling shareholder, I find that MLSS enhances firm value but only when the .relative shareholding difference is large. This suggests stronger monitoring incentives at work when the NCLS hold substantial interests in the company but their holding levels are small relative to the controlling shareholder. By contrast when the relative! difference in shareholding among the large shareholders decreases, potential collusion among these shareholders reduces firm value. ABSTRACT Second, it further explores the underlying impact of the MLSS on agency costs. Supporting the non-linear relationship documented in the first empirical study, I find that the relationship between MLSS and [he level of minority expropriation is nonlinear. This non-linear relationship suggests that MLSS decreases (increases) the level of minority expropriation in a company due to the monitoring (collusion) motives driven by the relative low (high) shareholding of the NCL..,). Finally, this thesis shows that board composition 15 affected by the MISS. More importantly, the presence of directors from the NCLS has negative impact on firm valuation, which indicates that the main role played by the board representation of NCLS is collusion rather than monitoring. In other words, the NCLS use their board representation for their own benefit. Overall, these findings suggest that whether or not the MLSS works as an effective corporate governance mechanism is critically dependent on the relative size of shareholdings of the NCLS. This thesis contributes to the corporate governance literature in two main ways. First and foremost, it highlights the importance of the collusion effect in the study of the MLSS. It provides robust evidence on the non linear impact of the MLSS on firm value and agency costs. It also provides insights into how NCLS exert their control for their own benefit and the consequence to the other minority shareholders. These findings have important policy implications for minority interests' protection. Especially, they suggest that independent board of directors who can stand for minority interests are extremely important when there are large shareholders of a similar size who control the company. Second, this study contributes to the fast growing literature on corporate governance in an emerging market where ownership concentration is the norm. Given that law and it is relatively weak in an emerging market, the effectiveness of internal governance becomes even more important. Understanding the impact of MLSS is essential to the development of the corporate governance practice in these economics. This study provides timely research on the potential corporate governance role of MLSS in emerging markets.
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