Friend or Foe? The Role of State and Mutual Fund Ownership in the Split Share Structure Reform in China

32 Pages Posted: 21 Feb 2010

See all articles by Michael Firth

Michael Firth

Lingnan University - Department of Finance and Insurance

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Hong Zou

The University of Hong Kong - Faculty of Business and Economics

Date Written: Dec 2008

Abstract

The recent split share structure reform in China involves the non-tradable shareholders proposing a compensation package to the tradable shareholders in exchange for the listing rights of their shares. We find that state ownership (the major owners of non-tradable shares) has a positive effect on the final compensation ratio. In contrast, mutual fund ownership (the major institutional owner of tradable shares) has a negative effect on the compensation ratio and especially in state owned firms. The evidence is consistent with our predictions that state shareholders have incentives to complete the reform quickly and exert political pressure on mutual funds to accept the terms without a fight.

Keywords: mutual funds, state ownership, share structure reform, shareholder activism, China

JEL Classification: G15, G18, G23

Suggested Citation

Firth, Michael and Lin, Chen and Zou, Hong, Friend or Foe? The Role of State and Mutual Fund Ownership in the Split Share Structure Reform in China (Dec 2008). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1555451

Michael Firth (Contact Author)

Lingnan University - Department of Finance and Insurance ( email )

Castle Peak Road
Tuen Mun, New Territories
Hong Kong
China
+852 2616 8160 (Phone)
+852 2466 4751 (Fax)

Chen Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Hong Zou

The University of Hong Kong - Faculty of Business and Economics ( email )

Hong Kong

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