Ownership Structure and Firm Value in China's Privatized Firms: 1991–2001

Abstract

This paper investigates the relation between ownership structure and firm value across a sample of 5,284 firm years of China's partially privatized former state-owned enterprises (SOE) from 1991-2001. We find that state and institutional shares are significantly negatively related to Tobin's Q, and that significant convex relations exist between Q and state shares, as well as between Q and institutional shares. We also find that foreign ownership is significantly positively related to Tobin's Q. We test for potential endogeneity of ownership, and find that Q and state/foreign ownership are not jointly determined. We also test for time-series, industry, and geo-economic location effects, and find our results to be robust.

Does ownership matter in publicly listed tourism firms? Evidence from Jordan

“…However, from Chinese perspectives, Wei et al (2005) detect that both institutional ownership and state ownership are negatively related to firm performance.…”

“…There are different studies that support a positive role of such investors in corporate performance (see for example, Wei, Xie, & Zhang, 2005). This is due to their effective monitoring role to direct managers to act in a consistent manner with firm value maximisation.…”

Structural Changes in the Chinese Stock Market: A Review of Empirical Research

“…Table 1 shows that the empirical results are generally consistent with the hypothesis of an efficiency gain after the partial privatisation of SOEs. The increase in minority private ownership is shown to be associated with higher perceived firm value (Wei, Xie, and Zhang, 2005); higher profit reinvestment rate (Cull and Xu, 2005); higher discount rate in making investment decisions (Liu and Siu, 2011); improved firm's earnings ability, real sales, and workers' productivity (Sun and Tong, 2003); better transparency of firm's specific information (Gul, Kim, and Qiu, 2010); lower earnings management ; higher pay-for-performance sensitivity (Cao, Pan, and Tian, 2011); higher accounting conservatism ; and the choice of higher quality auditors (Wang, Wong, and Xia, 2008). The primary argument is that the stock market provides incentives for investors to gather information that is reflected in share price and this information can improve managerial incentives in a number of ways.…”

“…Specifically, managerial ownership, foreign ownership, and employee ownership represent less than 2% of the outstanding shares, and so they do not constitute major voting blocks (Chen, Firth, and Xu, 2009). Regarding managerial ownership, for a sample of 5,284 publicly traded Chinese firms, Wei et al (2005) report an average stock holding of only 0.015% by senior managers and directors for partially privatised SOEs. Due to such low managerial ownership, most of the related literature on ownership structure has unanimously ignored managerial shares.…”

“…In the case of China, the managerial ownership in listed SOEs is minimal. For a sample of partially privatised SOEs, Wei et al (2005) report an average stock holding by senior managers and directors of only 0.015%. Employee stock ownership is also not common, and Meng et al (2011) find that employee stock ownership plans (ESOPs) do not appear to have an effect on firm value and performance.…”