Study on the allocation of decision-making power and corporate value: empirical evidence from enterprise groups

PAN Yilin1 ZHU Kai2 CHEN Xinyuan2

(1.School of Accountancy, Shanghai University of Finance and Economics)
(2.Institute of Accounting and Finance in School of Accountancy, Shanghai University of Finance and Economics)

【Abstract】This paper tested the impact of the allocation of decision-making power on the operational efficiency and market value of enterprises. On the one hand, centralized management can play a big role in coordinating enterprise resources, utilizing the internal market, and enhancing the efficiency of existing resource management. On the other hand, in making investment decisions with higher uncertainty, decentralized management can play a good role in combining decision-making power with proprietary knowledge. However, centralized managers may worsen over-investment in the absence of proprietary knowledge. By using the proportion of employee salary paid by the parent company as an indicator measuring the centralization level of the enterprise group, this paper tested the economic consequences of the allocation of decision-making power. According to the empirical results, centralized management of enterprise groups can remarkably enhance the efficiency of existing resource management, but it can trigger over-investment simultaneously. The path analysis results indicate that management efficiency and over-investment serve as the important means for decision-making power to affect corporate value. The research results of this paper are of great significance for enterprises in their establishing an appropriate allocation mode of decision-making power.

【Keywords】 centralized management; management efficiency; over-investment; corporate value;

【DOI】

【Funds】 Major Project of National Natural Science Foundation of China (71632006) Major Project of National Natural Science Foundation of China (71272008) Project of Key Research Bases for Humanities and Social Sciences under the Ministry of Education (14JJD630005) Project under Shanghai Municipal Education Commission (2014111143)

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    Footnote

    [1]. ① According to Accounting Standard For Business Enterprises No. 9: Employee Compensation, employees are defined as all personnel signing labor contracts with enterprises, including full-time, part-time and temporary employees, and the personnel who have not signed formal labor contracts with enterprises but are officially appointed by such enterprises. Those personnel who have not signed labor contracts with the enterprises or are not formally appointed by them, but have provided services for the enterprises or provided services similar to those offered by the formal employees also belong to employees, including those personnel who have provided services for enterprises according to labor contracts signed by the enterprises and labor intermediary organizations. Therefore, if the performance appraisal power and the remuneration decision-making power are in the hands of a parent company, the appointed personnel are much closer to the employees of the parent company, and their remuneration expenses should be reflected in the financial statement of the parent company. [^Back]

    [2]. ② In the robustness test, this paper excludes the samples with PAsset or PSalary outside the interval [0, 1] before the regression, and also uses the method of directly calculating the ratio. After the test is repeated, the conclusion still remains unchanged. [^Back]

    [3]. ③ The year and industry fixed effects are added for the full sample regression, or the individual fixed effects model is used to measure the total factor productivity with the residuals. After the test is repeated, the conclusion of this paper still remains unchanged. [^Back]

    [4]. ④ As the regression test involves numerous variables, only the correlation coefficients of the main variables are given here. The correlation coefficients of other variables are available upon request. [^Back]

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This Article

ISSN:1002-5502

CN: 11-1235/F

Vol 34, No. 12, Pages 111-119

December 2018

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Article Outline

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Abstract

  • 1 Introduction
  • 2 Theoretical analysis and research hypothesis
  • 3 Research Design
  • 4 Analysis of regression results
  • 5 Further analysis
  • 6 Conclusion
  • Footnote

    References