Unlike other countries with only one principle agency cost incurred by the separation of ownership from management, there are currently two forms of agency costs prevalent in China: vertical agency cost between shareholders and managers and horizontal...
Unlike other countries with only one principle agency cost incurred by the separation of ownership from management, there are currently two forms of agency costs prevalent in China: vertical agency cost between shareholders and managers and horizontal agency cost between majority shareholders and minority shareholders. The former agency problem is originated from the SOE reform started in 1978, which led to insider control problem and owner absence. Conversely, the concentrated ownership structure makes minority shareholders vulnerable to exploitation from blockshareholders and thus creates the latter agency cost. It is concluded in this article that mechanisms to reduce these agency costs cannot be properly established or effective without an awareness of this fact.