The Role of Internal Governance Mechanism on Alleviating Principal-Principal Conflicts in Emerging Economies

In emerging economies like China, controlling families usually gain excess control rights over cash flow rights (excess control, hereafter), thus providing a strong incentive expropriate private benefits at the expense of minority shareholders. Therefore, this paper attempts to addresses the question: how to alleviate the principal-principal conflicts caused by excess control? Based on a sample of 1617 firm-year observations of Chinese family-controlled, publicly-listed firms during 2004 to 2008, this study first corroborates prior findings that excess control is negatively related to firm performance. Furthermore, we find that this negative relationship is weaker in firms with multiple large shareholders structure.