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Title: Three essays on market mechanisms in the governance of modern firms
Author: Sun, Hanwen
ISNI:       0000 0004 7228 4313
Awarding Body: University of Sheffield
Current Institution: University of Sheffield
Date of Award: 2018
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This study investigates the role of market mechanisms on corporate governance through the interactions of corporate insiders (e.g., CEO and board of directors) and outside investors (e.g., short sellers and institutional investors) in information leakage, CEO human capital preference and product differentiation respectively. Firstly, prior studies generally argue that family insiders are better informed due to their long-standing knowledge and dominant control over the firm. Using a novel insider trading and short selling dataset from the Hong Kong Stock Exchange (HKEx), we investigate potential information leakage from corporate insiders to short sellers, particularly in family firms. Even without the presence of market makers in the HKEx, we document a significant increase in short selling volume before insider trades are released to the public. The non-monotonic relationship between the short selling intensity and family control contributes to the debate on whether family presence facilitates or limits information leakage. In addition, trading by non-family insiders is more likely to convey private information, as compared to family insiders. Secondly, a large body of literature has argued CEOs are the principal corporate decision makers and the most important corporate insiders. Drawing from the resourcebased view, we investigate whether CEO human capital is a source of competitive advantage for a firm and how institutional investors value it in the Chinese market. Using a manager-firm matched panel dataset of Chinese firms, we find that institutional investors tend to tilt their portfolios toward firms whose CEOs have more business ties and industry experience in the long run while their preference for political capital is more likely to be short-term focused. In particular, this preference heterogeneity for different types of CEO human capital is more pronounced for institutional investors with shorter horizons. Compared to long-term investors, short-term investors are less likely to respond to sustainable competitive advantage brought by CEO business ties and industry experience. Furthermore, that their dynamic marginal holdings increase around CEO turnover as a result of political capital change confirms that these investors are likely to aim for short-term benefits from the firm. Thirdly, although the effect of institutional investors on firm performance is recognized in the literature, less well-studied is the role played by institutional investors in the governance of innovation process of publicly traded firms through inducing CEO efforts. We investigate how the presence of institutional investors can shape a firm's industrial competitiveness through the governance of R&D and advertising expenditure. Our evidence suggests that institutional investors can promote product differentiation by monitoring the management. However, the role of institutional monitoring is only effective in the governance of advertising rather than R&D. Furthermore, after classifying institutional investors into active and passive ones, we find that it is mainly active institutional investors that play the monitoring role.
Supervisor: Yin, Shuxing ; Bhaumik, Sumon Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available