Title: Managerial Discretion and Firm Performance of China's Listed Companies
Reference Number: 1036
Publication Date: January 2002
JEL Classifcation:

Eric Chang
The University of Hong Kong

Sonia Wong
The University of Hong Kong


Agency theory suggests that managerial discretion is negatively related to firm performance. In this study, we investigate how the relationship may be affected by the existence of controlling parties with non-profit-maximizing objectives. In particular, we examine the relationship in China's listed firms and offer evidence that managerial discretion is related positively to firm performance. Our results suggest that managerial discretion is not necessarily detrimental to firm performance, as traditional agency theory suggests. Rather, managerial discretion may have a positive impact on firm performance if managers' objectives are better aligned with firm performance than those of controlling parties.


Revised February 2003

Key words: managerial discretion, agency theory, controlling shareholder, political control, China's corporate governance, transitional economy

Last modified: 07/15/2003