Do non-controlling blockholders with common ownership monitor controlling shareholders effectively? Evidence from China

Using a sample of Chinese listed firms during 2007–2020, we find that non-controlling blockholders (NCBs) with common ownership can exert effective monitoring on dominant owners' self-dealing behaviors captured by financial misconducts related to controlling shareholders. This effect is concentrated among state-owned enterprises (SOEs), especially for the common NCBs holding only SOEs. Finally, the monitoring effect is particularly evident when firms have more peer firms, when common NCBs hold more firms within the same industry, when common NCBs exert stronger exit threats, or when common NCBs hold long investment horizons, indicating that common ownership enhances NCBs' incentives and abilities to identify and curb controlling shareholders' misbehaviors.