The State-owned Capital Gains Handover System and Managerial Agency Cost: Evidence from Central State-owned Listed Companies in China

We examine the effect of the State-owned Capital Gains Handover System on managerial agency cost among 382 Chinese central state-owned listed companies during 2004 to 2017. The results show that the State-owned Capital Gains Handover System has significantly positive effect on reducing managerial agency cost. That means a higher gain-handover proportion contributes to more effective corporate governance. However, the positive effect would become weaker with a company's stronger profitability. In addition, we examine the internal transferring mechanism of gain-handover pressure inside company groups. We find that the positive effect become stronger if the parent company's cash flow right is weaker. This research enriches the study on the gain-sharing relationships with a unique Chinese circumstance, the State-owned Capital Gains Handover System, and is of great importance for further improvement of this system and SOE reform.