Governance role of secondary shareholders: A study of Chinese outward foreign direct investment

This study examines the effects of institutional and foreign ownership on the outward foreign
direct investment (FDI) of Chinese firms. Based on agency theory and the resource-based
view, we argue that secondary shareholders, i.e., institutional and foreign shareholders, are
active and effective governance forces in Chinese firms. They promote and support Chinese
firms to engage in outward FDI through their monitoring and resource roles. Their
governance effect, however, may be hindered by the power of CEOs as a result of principalprincipal
conflicts. Our empirical study of 224 Chinese listed firms revealed that institutional
and foreign ownership is positively associated with the outward FDI propensity of Chinese
firms. The positive relationship between institutional ownership and outward FDI propensity
weakens when CEO power increases. There was, however, no support for the moderating
effect of CEO power on the relationship between foreign ownership and outward FDI
propensity.