Effects of the shareholder base on firm behavior and firm value in China

Contrary to the evidence based on US firms, we find that a large shareholder base does not benefit firms in China. Our results suggest that a large shareholder base in China implies elevated agency conflicts between individual investors and the controlling shareholders. We find that a larger shareholder base is associated with lower levels of capital expenditures, a lower standard deviation of return on assets, a lower standard deviation of return on equity, and no reduction in dividend payout. Our results imply that insiders increase the expropriation of outsiders as agency conflicts escalate. The shareholder base is associated with a decrease in firm value in China.