• agency costs;
  • board of directors;
  • China;
  • ownership concentration;
  • principal–principal conflict

abstract  By examining the level of ownership concentration across firms, we determine how principal–principal conflict, defined as the incongruence of ownership goals among shareholder groups in a corporation, impacts agency costs of Chinese boards of directors. Based on data from Chinese companies listed on the Shanghai and Shenzhen stock exchanges during 1999–2003, we found that ownership concentration had a U-shaped relationship with board compensation, board size and the presence of independent directors. These results provide corroborating evidence that principal–principal conflict can lead to high agency costs.