This book is a printed edition of the Special Issue "Performance and Behavior of Family Firms" that was published in IJFS

The relationship between ownership structure and firm performance has been studied extensively in corporate finance and corporate governance literature. Nevertheless, the mediation (path) analysis to examine the issue can be adopted as a new approach to explain why and how ownership structure is related to firm performance and vice versa. This approach calls for full recognition of the roles of agency costs and corporate risk-taking as essential mediating variables in the bi-directional and mediated relationship between ownership structure and firm performance. Based on the agency theory, corporate risk management theory and accounting for the dynamic endogeneity in the ownership–performance relationship, this book develops two-mediator mediation models, including recursive and non-recursive mediation models, to investigate the ownership structure–firm performance relationship. It is demonstrated that agency costs and corporate risk-taking are the ‘missing links’ in the ownership structure–firm performance relationship. Hence, this book brings into attention the mediation and dynamic approach to this issue and enhances the knowledge of the mechanisms for improving firm’s financial performance. This book will be of interest to corporate finance, management and economics researchers and policy makers. Post-graduate research students in corporate governance and corporate finance will also find this book beneficial to the application of econometrics into multi-dimensional and complex issues of the firm, including ownership structure, agency problems, corporate risk management and financial performance.

This dissertation, "Leverage, Ownership Structure and Firm Behavior in China" by Wenjie, Wu, 武文潔, was obtained from The University of Hong Kong (Pokfulam, Hong Kong) and is being sold pursuant to Creative Commons: Attribution 3.0 Hong Kong License. The content of this dissertation has not been altered in any way. We have altered the formatting in order to facilitate the ease of printing and reading of the dissertation. All rights not granted by the above license are retained by the author. Abstract: Abstract of thesis entitled "Leverage, Ownership Structure and Firm Behavior in China" Submitted by Wu, Wenjie for the degree of Doctor of Philosophy at The University of Hong Kong in November 2006 Both the hard budget constraint imposed by debt on firms' investment behavior and its impact on firms' market valuation have been relatively well identified in developed markets. However, not only has less systematic evidence been uncovered in China, but also China's unique corporate governance mechanisms have a high potential to distort debt's hard budget constraint nature. By using financial and ownership structure data for all listed companies on the Shanghai and Shenzhen Stock Exchanges from 1998 to 2003, I conduct in-depth empirical tests to investigate the role of debt and ownership structure in influencing a firm's investment decisions (Part I) and in affecting a firm's market valuation (Part II). This study provides empirical evidence that among Chinese listed companies, debt can also impose a hard budget constraint on firm investment and that the positive effect of debt's hard budget constraint on firm value appears to dominate its negative valuation effect. But both of them are only significant for firms with fewer growth opportunities, not for firms with more. Moreover, both the hard budget constraint imposed by debt on firm investment and its valuation effects can be further distorted by a firm's ownership structure. Specifically, this study shows that when a higher level of shares are owned by government and by the largest shareholder, it tends to weaken the role of debt in disciplining a firm's investment behavior and to reduce its positive valuation effect. At the same time, a strengthening effect could arise from the presence of challenging shareholders, proxied by the percentage of shares concentrated in the hands of the 2nd to 10th largest shareholders. Again, the influences of these corporate governance factors are more significant for firms with fewer growth opportunities than for those with more. Overall, the evidence presented in this paper indicates that with regard to a firm's investment and a firm's market valuation, both debt and ownership structure matter, and the ways in which they matter depend upon a firm's growth prospects. This paper is one of the first studies to systematically investigate the influence of ownership structure on the relationship between debt and firm behavior in China. DOI: 10.5353/th_b3736259 Subjects: Stock ownership - China Financial leverage - China Corporate debt - China Investments - China

Standard economic models assume that many small investors own firms. This is so in most large U.S. firms, but wealthy individuals or families generally hold controlling blocks in smaller U.S. firms and in all firms in most other countries. Given this, the lack of theoretical and empirical work on tightly held firms is surprising. What corporate governance problems arise in tightly held firms? How do these differ from corporate governance problems in widely held firms? How do control blocks arise and how are they maintained? How does concentrated ownership affect economic growth? How should we regulate tightly held firms? Drawing together leading scholars from law, economics, and finance, this volume examines the economic and legal issues of concentrated ownership and their impact on a shifting global economy.

This paper attempts to review literature on corporate governance on the ownership structure from a firm performance perspective. The dominant paradigm of corporate governance is based on the argument of Berle and Means (1932) that separation of ownership and control affects the reported level of income of firms, either positively or negatively. Subsequent studies have taken off from this concept of separation of ownership and control or in what is otherwise more famously known as 'conflict of interests' theory. Seven major arguments that have emerged within the context of 'conflict of interests' theory are explained in this paper. These arguments are basically considered to have emerged as an explanation to discuss the motivations that govern the managers and owners running the corporations. The uniqueness of the paper is in the way the literature is organized. As alluded earlier, corporate governance within the conflict of interests framework is subject to behavioral motivations of those who run the corporations. The profoundness of conflict of interests lies in where the locus of control is - with the managers, the owners, the institutional investors or with the markets. Hence, the literature has been classified under a few major headings to explain the importance of 'locus of control' and its impacts on firm's performance. Finally, some concluding remarks are offered in the summary.