Improving Corporate Governance Where the State is the Controlling Block Holder: Evidence from China

European Journal of Finance, Forthcoming

63 Pages Posted: 6 Feb 2008 Last revised: 28 May 2012

See all articles by Henk Berkman

Henk Berkman

University of Auckland - Business School

Rebel A. Cole

Florida Atlantic University

Jiang Lawrence Fu

Standard Charter Bank

Date Written: January 20, 2012

Abstract

We examine changes in market values and accounting returns for a sample of publicly traded Chinese firms around announcements of block-share transfers among government agencies ("State Bureaucrats"), market-oriented State-owned enterprises ("MOSOEs") and private investors ("Private Entities"). We provide evidence that transfers from State Bureaucrats to Private Entities result in larger increases in market value and accounting returns than transfers to MOSOEs. We also find that CEO turnover occurs more quickly when shares are transferred to Private Entities. Moreover, we find that the changes in firm value and accounting returns as well as the likelihood of CEO turnover are all functions of the incentives and managerial expertise of the new block holder. We conclude that corporate governance can be improved at State-controlled firms by improving the incentives and managerial expertise of controlling block holders, and that this is better accomplished by transferring ownership to private investors rather than by shuffling ownership among State-controlled entities.

Keywords: block-holder identity, China, partial corporate control, partial privatization, privatization, State ownership, SOE

JEL Classification: G32, G34, G38

Suggested Citation

Berkman, Henk and Cole, Rebel A. and Fu, Jiang Lawrence, Improving Corporate Governance Where the State is the Controlling Block Holder: Evidence from China (January 20, 2012). European Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1020170 or http://dx.doi.org/10.2139/ssrn.1020170

Henk Berkman

University of Auckland - Business School ( email )

Private Bag 92019
Room: 577
Auckland
New Zealand
(64 9) 3737599 Ext. 7181 (Phone)
(64 9) 3737406 (Fax)

Rebel A. Cole (Contact Author)

Florida Atlantic University ( email )

College of Business
777 Glades Road
Boca Raton, FL 33431
United States
1-561-297-4969 (Phone)

HOME PAGE: http://rebelcole.com

Jiang Lawrence Fu

Standard Charter Bank ( email )

Hong Kong
China

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