Principal-principal conflicts under weak institutions: A study of corporate takeovers in China

The principal-principal perspective is tested and extended in the context of corporate takeovers of Chinese publicly listed firms from 1998 to 2007. The resistance of a target firm's controlling shareholder toward potential takeovers reflects the conflict between the principal and minority shareholders. It was found that this resistance weakens when target firms are located in regions with more institutional development, where the minority shareholders' interests are better protected. The resistance also decreases for target firms with CEOs who are politically connected, as these CEOs may be more interested in their own political careers than in representing the interests of the controlling shareholders.