Corporate Governance in China: Ownership Structures and the Performance of Listed Firms

Abstract

This study investigates whether ownership structure has a significant effect on the performance of listed firms in China. It also investigates what level of Chinese institutional ownership may be the most advantageous. The results of the empirical analysis of firms listed on the Shanghai and Shenzhen stock exchanges are reported in this paper. The most significant findings are that institutional ownership, through Legal Person holding companies, is found to have a positive bearing on listed firm performance. Similar results are found for individual investors, offshore ownership and foreign institutions, but to a lesser extent. Also of significance is that Legal Person holdings are found to have a non-linear relationship to performance in that the levels of Legal Person ownership are found to be a significant factor. Significantly, the findings suggest that Medium levels of Legal Person ownership are the most effective in improving firm performance. Other issues that are identified in the empirical analysis are that size is relevant, in that large firms are found not to perform as well as smaller firms. Leverage carries some weight also, as highly leveraged firms are found not to perform as well.

Keywords: State-owned enterprises, Ownership structures, Corporate governance, Emerging markets, China

JEL Classification: P31, L33, G32, G38, O53