Do State-Owned Enterprises Have Worse Corporate Governance? An Empirical Study of Corporate Practices in China

59 Pages Posted: 28 Jan 2018 Last revised: 24 Jun 2019

See all articles by Yu-Hsin Lin

Yu-Hsin Lin

City University of Hong Kong (CityUHK) - School of Law; City University of Hong Kong (CityUHK) - Centre for Chinese & Comparative Law

Yun-chien Chang

Academia Sinica - Institutum Iurisprudentiae (IIAS); New York University School of Law

Date Written: June 23, 2019

Abstract

Prior literature on corporate governance in China asserts that state-owned enterprises (SOEs) are inefficiently run and badly governed—they are either worse than privately owned enterprises (POEs) or as bad. There is, however, no solid empirical evidence that underpins either claim. Using a unique, hand-coded data set on corporate charter provisions in a random sample of nearly 300 publicly listed Chinese firms, we develop an additive corporate governance index. The index shows that the corporate governance of SOEs firmly controlled by the Chinese central government is more in favor of minority shareholders, whereas that of SOEs firmly controlled by provincial governments appears to be less protective of minority shareholders. Overall, SOEs, particularly those controlled by the central government, do not have worse firm performance than POEs, as measured by industry-adjusted Tobin’s Q. Nonetheless, firms that are more politically compliant with Communist Party policies have lower industry-adjusted Tobin’s Q. This paper demonstrates the nuanced differences among SOEs and their performance vis-à-vis POEs.

Keywords: State-owned enterprises (SOEs), corporate charters, firm value (Tobin’s Q), political compliance, corporate governance index, external financial dependence

JEL Classification: K22, G34

Suggested Citation

Lin, Yu-Hsin and Chang, Yun-chien, Do State-Owned Enterprises Have Worse Corporate Governance? An Empirical Study of Corporate Practices in China (June 23, 2019). Available at SSRN: https://ssrn.com/abstract=3111820

Yu-Hsin Lin (Contact Author)

City University of Hong Kong (CityUHK) - School of Law ( email )

Tat Chee Avenue
Kowloon
Hong Kong

HOME PAGE: http://www6.cityu.edu.hk/slw/people/people_Yu_Hsin.html

City University of Hong Kong (CityUHK) - Centre for Chinese & Comparative Law

83 Tat Chee Avenue
Room P5300, 5th Floor, Academic 1
Kowloon Tong
Hong Kong

Yun-chien Chang

Academia Sinica - Institutum Iurisprudentiae (IIAS) ( email )

128 Academia Sinica Rd., Sec. 2
Nankang
Taipei City, 11529
Taiwan

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

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