Journal of Business Ethics

, Volume 141, Issue 2, pp 381–392 | Cite as

The Ethical Dimension of Management Ownership in China

  • Wei Li
  • Yaping Wang
  • Liansheng WuEmail author
  • Jason Zezhong Xiao


Management ownership has ethical consequences because it has an interest alignment effect or an entrenchment effect. In this paper, we investigate the ethical consequences of management ownership in China using accounting conservatism as the direct measure of entrenchment and alignment between shareholders and managers. We argue and find that the ethical effect of management ownership differs significantly in firms with different ultimate controlling shareholders. Specifically, management ownership in non-state-owned enterprises (NSOEs) has an alignment effect, while management ownership has less of an alignment effect in state-owned enterprises than in NSOEs. These results show that the ethical consequences of management ownership are moderated by the nature of ultimate controlling ownership.


Accounting conservatism China Corporate ownership Ethical dimension Management ownership 



We appreciate comments and suggestions from three anonymous reviewers. Wei Li, Yaping Wang, and Liansheng Wu acknowledge financial support from the National Social Science Foundation of China (No. 14BGL183) and the National Natural Science Foundation of China (Nos. 71272037 and 71025003).


  1. Ahmed, A. S., & Duellman, S. (2007). Accounting conservatism and board of director characteristics: An empirical analysis. Journal of Accounting and Economics, 43(2–3), 411–437.CrossRefGoogle Scholar
  2. Anderson, R. C., & Reeb, D. M. (2003). Family ownership, corporate diversification, and firm leverage. Journal of Law and Economics, 46(3), 653–684.CrossRefGoogle Scholar
  3. Ball, R., Kothari, S. P., & Robin, A. (2000). The effect of international institutional factors on properties of accounting earnings. Journal of Accounting and Economics, 29(1), 1–51.CrossRefGoogle Scholar
  4. Ball, R., & Shivakumar, L. (2005). Earnings quality in UK private firms. Journal of Accounting and Economics, 39(1), 83–128.CrossRefGoogle Scholar
  5. Basu, S. (1997). The conservatism principle and the asymmetric timeliness of earnings. Journal of Accounting and Economics, 24(1), 3–37.CrossRefGoogle Scholar
  6. Chen, G., Firth, M., Xin, Y., & Xu, L. (2008). Control transfers, privatization, and corporate performance: Efficiency gains in China’s listed companies. Journal of Financial & Quantitative Analysis, 43(1), 161–190.CrossRefGoogle Scholar
  7. Chung, H., & Wynn, J. (2008). Managerial legal liability coverage and earnings conservatism. Journal of Accounting and Economics, 46(1), 135–153.CrossRefGoogle Scholar
  8. Claessens, S., Djankov, S., Fanand, J., & Lang, L. (2002). Disentangling the incentive and entrenchment of large shareholdings. Journal of Finance, 57(6), 2741–2771.CrossRefGoogle Scholar
  9. Claessens, S., & Lang, L. (2000). The separation of ownership and control in East Asian corporations. Journal of Financial Economics, 58(1), 81–112.CrossRefGoogle Scholar
  10. Conyon, M. J., & Florou, A. (2002). Top executive dismissal, ownership and corporate performance. Accounting and Business Research, 32(4), 209–225.CrossRefGoogle Scholar
  11. Core, J., & Larcker, D. F. (2002). Performance consequences of mandatory increases in executive stock ownership. Journal of Financial Economics, 64(2), 317–340.CrossRefGoogle Scholar
  12. Demsetz, H. (1983). The structure of ownership and the theory of the firm. Journal of Law and Economics, 26, 375–390.CrossRefGoogle Scholar
  13. Fahlenbrach, R., & Stulz, R. M. (2009). Management ownership dynamics and firm value. Journal of Financial Economics, 92(3), 342–361.CrossRefGoogle Scholar
  14. Fan, J. P. H., Wong, T. J., & Zhang, T. (2007). Politically connected CEOs, corporate governance, and post-IPO performance of China’s newly partially privatized firms. Journal of Financial Economics, 84(2), 330–357.CrossRefGoogle Scholar
  15. Goh, B. W., & Li, D. (2011). Internal controls and conditional conservatism. The Accounting Review, 86(3), 975–1005.Google Scholar
  16. Hermalin, B. E., & Weisbach, M. S. (1991). The effects of board composition and direct incentives on firm performance. Financial Management, 20(1), 101–112.CrossRefGoogle Scholar
  17. Himmelberg, C., Hubbard, R., & Sheehan, D. P. (1999). Understanding the determinants of management ownership and the link between ownership and performance. Journal of Financial Economics, 53(2), 353–369.CrossRefGoogle Scholar
  18. Holderness, C. G., Kroszner, R. S., & Sheehan, D. P. (1999). Were the good old days that good? Changes in managerial stock ownership since the great depression. Journal of Finance, 54(4), 435–469.CrossRefGoogle Scholar
  19. Holderness, C. G., & Sheehan, D. P. (1991). Monitoring an owner: The case of turner broadcasting. Journal of Financial Economics, 30(2), 325–346.CrossRefGoogle Scholar
  20. Holthausen, R. W., & Larcker, D. F. (1996). The financial performance of reverse leveraged buyouts. Journal of Financial Economics, 42(3), 293–332.CrossRefGoogle Scholar
  21. Holthausen, R. W., & Watts, R. L. (2001). The relevance of value-relevance literature for financial accounting standard setting. Journal of Accounting and Economics, 31(1), 3–75.CrossRefGoogle Scholar
  22. Hu, Y., & Zhou, X. (2008). The performance effect of managerial ownership: Evidence from China. Journal of Banking & Finance, 32(10), 2099–2110.CrossRefGoogle Scholar
  23. Jensen, M., & Meckling, W. (1976). Theory of the firm: Managerial behavior, agency costs, and ownership structure. Journal of Financial Economics, 3, 305–360.CrossRefGoogle Scholar
  24. Kato, T., & Long, C. (2006). CEO turnover, firm performance, and enterprise reform in China: Evidence from micro data. Journal of Comparative Economics, 34(4), 796–817.CrossRefGoogle Scholar
  25. LaFond, R., & Roychowdhury, S. (2008). Management ownership and accounting conservatism. Journal of Accounting Research, 46(1), 1–36.CrossRefGoogle Scholar
  26. LaFond, R., & Watts, R. L. (2008). The information role of conservatism. The Accounting Review, 83(2), 447–478.CrossRefGoogle Scholar
  27. Lasfer, M. A. (2006). The interrelationship between management ownership and board structure. Journal of Business Finance & Accounting, 33(7–8), 1006–1033.CrossRefGoogle Scholar
  28. Lin, J. Y., Cai, F., & Zhou, L. (1998). Competition, policy burdens, and state-owned enterprise reform. American Economic Review, 88(2), 422–427.Google Scholar
  29. Liu, Y., & Liu, W. (2007). CEO’s tenure and firm R&D spending. Management World, 1, 128–136. (in Chinese).Google Scholar
  30. Lu, C., Zheng, H., Yan, M., & Xu, J. (2009). The design for listed companies’ system of stimulation by stock option and purchase: Is it an incentive or welfare. Management World (in Chinese), 9, 133–147.Google Scholar
  31. McConnell, J. J., & Servaes, H. (1990). Additional evidence on equity ownership and corporate value. Journal of Financial Economics, 27(2), 595–612.CrossRefGoogle Scholar
  32. Mehran, H. (1995). Executive compensation structure, ownership, and firm performance. Journal of Financial Economics, 38(2), 163–184.CrossRefGoogle Scholar
  33. Morck, R., Shleifer, A., & Vishny, R. W. (1988). Management ownership and market valuation: An empirical analysis. Journal of Financial Economics, 20, 293–315.CrossRefGoogle Scholar
  34. Nichols, C., Wahlen, J., & Wieland, M. (2008). Publicly traded versus privately held: Implication for conditional conservatism in bank accounting. Review of Accounting Studies, 14(1), 88–122.CrossRefGoogle Scholar
  35. Shleifer, A., & Vishny, R. W. (1989). Management entrenchment: The case of manager-specific investments. Journal of Financial Economics, 25(1), 123–139.CrossRefGoogle Scholar
  36. Shleifer, A., & Vishny, R. W. (1997). A survey of corporate governance. Journal of Finance, 52(2), 737–783.CrossRefGoogle Scholar
  37. Shuto, A., & Takada, T. (2010). Management ownership and accounting conservatism in Japan: A test of management entrenchment effect. Journal of Business Finance & Accounting, 37(7–8), 1–26.Google Scholar
  38. Sun, Q., & Tong, W. H. S. (2003). China share issue privatization: The extent of its success. Journal of Financial Economics, 70(2), 183–222.CrossRefGoogle Scholar
  39. Watts, R. L. (2003). Conservatism in accounting Part I: Explanations and implications. Accounting Horizons, 17(3), 207–221.CrossRefGoogle Scholar
  40. Wei, Z., Xie, F., & Zhang, S. (2005). Ownership structure and firm value in China’s privatized firms: 1991–2001. Journal of Financial and Quantitative Analysis, 40(1), 87–108.CrossRefGoogle Scholar
  41. Xu, P., & Ning, X. (2011). Does family management improve family business value? Science of Science and Management of Science and Technology, 11, 144–151. (in Chinese).Google Scholar

Copyright information

© Springer Science+Business Media Dordrecht 2015

Authors and Affiliations

  • Wei Li
    • 1
  • Yaping Wang
    • 2
  • Liansheng Wu
    • 2
    Email author
  • Jason Zezhong Xiao
    • 3
  1. 1.International School of BusinessBeijing International Studies UniversityBeijingChina
  2. 2.Guanghua School of ManagementPeking UniversityBeijingChina
  3. 3.Cardiff Business SchoolCardiff UniversityCardiffUK

Personalised recommendations