Multiple Large Shareholders and Firm Performance: Evidence from China*

Abstract Agency theory has shown that multiple large shareholders have competing monitoring and entrenchment governance effects. Therefore, this paper studies the governance effects of multiple large shareholders to determine the dominant effect in the Chinese setting. A panel data model and F‐ test demonstrate that a significant positive relationship exists between multiple large shareholders and firm performance, but the positive relationship between multiple large shareholders and firm performance will be weakened by state‐owned enterprises and politically connected enterprises. Furthermore, our findings suggest that multiple large shareholders can enhance firm performance by mitigating the agent–principal problem and the principal–principal problem. Additionally, a threshold model is introduced to explore the impact of other governance mechanisms on multiple large shareholders' governance, and our findings show that enhancing controlling shareholder governance and board size significantly weakens multiple large shareholders governance, but increasing the proportion of independent directors strengthens the positive relationship between multiple large shareholders and Tobin's Q and weakens the positive relationship between multiple large shareholders and ROA .