Journal of Business Ethics

, Volume 141, Issue 2, pp 411–431 | Cite as

Does Corporate Governance Enhance Common Interests of Shareholders and Primary Stakeholders?

  • Ninghua Zhong
  • Shujing WangEmail author
  • Rudai Yang


Employing a unique dataset of Chinese non-listed firms, this paper investigates the effects of the presence of 19 governance structures on 20 employees’ interest indicators. In general, we find that firms with the governance structures pay workers higher hourly wages, require less monthly working hours, and have a smaller chance of wage arrears. Meanwhile, the shares of total wage and welfare expenditures in total sales revenue are lower in these firms, which results in higher profitability. Moreover, firms with the governance structures invest significantly more into training and provide employees with better fringe benefits. Considering the low labor protection standard and the weak external regulations of China’s labor market, we explain the positive findings thusly: corporate governance structures induce managers to adjust wage payments to the “efficiency wage” level, which is the best balance point for the interests of both shareholders and employees and, therefore, for maintaining the stakeholder relationships. We also find the governance structures that give blockholders superpower are negatively associated with employees interests. These results highlight the importance of giving enough discretion to managers in order to successfully find the common ground for creating mutual values for shareholders and employees.


Corporate governance Employees’ interests Efficiency wage theory 



We thank the Section Editor Thomas Clarke, two anonymous referees, Sudipto Dasgupta, Vidhan Goyal, Mark Seasholes, and seminar participants at Hong Kong University of Science and Technology for helpful comments. We are also grateful to the research fund provided by Natural Science Foundation of China (with Grant number 71402123), the National Social Science Foundation of China (with grant number 13&ZD015), Shanghai Pujiang Program (with Grant number 14PJC104), the Fundamental Research Funds for the Central Universities (with Grant number 1200219243), and Shanghai Institute for National Economy at Shanghai Jiaotong University.


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Copyright information

© Springer Science+Business Media Dordrecht 2015

Authors and Affiliations

  1. 1.School of Economics and ManagementTongji UniversityShanghaiPeople’s Republic of China
  2. 2.School of International FinanceShanghai Finance UniversityShanghaiPeople’s Republic of China
  3. 3.School of EconomicsPeking UniversityBeijingPeople’s Republic of China

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