How does the relationship between multiple large shareholders affect corporate valuations? Evidence from China

This study analyzes how the relationship between non-controlling and controlling large shareholders affects corporate valuations. Using data from the Chinese market, we find that a firm's value is lower when its non-controlling large shareholders have a relationship with its controlling shareholder. In addition, higher ownership stakes and board representation of relational non-controlling large shareholders are associated with lower firm value. This effect is more pronounced when the agency conflicts between the controlling and minority shareholders are greater. Our findings suggest that it is important to consider the identities of non-controlling shareholders when examining the effects of multiple large shareholders on corporate governance or firm value.

► We study the effect of non-controlling large shareholders on firm value when they are related to the controlling shareholder.
► Firm values are lower when non-controlling large shareholders are related to the controlling shareholder.
► Higher ownership and board representation by relational non-controlling large shareholders are linked to lower firm value.
► The negative effect is more pronounced when conflicts between majority and minority shareholders are more significant.