Helping Hand or Grabbing Hand? Central vs. Local Government Shareholders in Chinese Listed Firms

Abstract:     
We analyze related party transactions between Chinese publicly listed firms and their state-owned enterprise (SOEs) shareholders to examine whether companies benefit from the presence of government shareholders and politically connected directors appointed by the government. We find that minority shareholders seem to be expropriated in firms controlled by local government SOEs, firms with a large proportion of local government affiliated directors on their board, firms without directors affiliated with the central government, and firms in provinces where local government bureaucrats are less likely to be prosecuted for misappropriation of state funds. In contrast, firms controlled by the central government (or having directors affiliated with the central government on their boards) are benefited in their related party transactions with their central government SOEs.

Keywords: Law and finance, Government ownership, China, State-Owned Enterprises (SOE), Related party transactions, Political connections, Expropriation, Tunneling

JEL Classifications: K42, G30

Working Paper Series