An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Sidney Chimoon Leung
City University of Hong Kong

Bertrand Horwitz
Binghamton University

Abstract: There are two conflicting views about agency costs at very high levels of management ownership, a condition common in Hong Kong. Such ownership can reduce agency costs because of greater alignment between controlling shareholders and minority shareholders or increase such costs because of the greater ability of controlling managers to extract private benefits. This study evaluates the relation between investor protection and concentrated management ownership duirng an unanticipated financial crisis. We find that during the Asian Financial Crisis Hong Kong firms with higher executive directors ownership had less negative returns (better performance), a result supported by analyses of share turnover and ROA changes. We also find stock ownership by non-executive directors and the unity of the CEO and board chair positions in one person are statisitcally signifant contributors to better performance during the crisis.

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