From State to State: Improving Corporate Governance Where the Government is the Controlling Block Holder

40 Pages Posted: 21 Aug 2007

See all articles by Rebel A. Cole

Rebel A. Cole

Florida Atlantic University

Henk Berkman

University of Auckland - Business School

Jiang Lawrence Fu

Standard Charter Bank

Date Written: November 12, 2002

Abstract

We examine stock returns for a sample of publicly traded Chinese firms around announcements of block share transfers from government agencies to corporatized firms where the State is the ultimate controlling shareholder. We provide evidence that these transfers improve corporate governance and firm value by partially reattaching cash-flow rights to control rights. We find that cumulative abnormal returns average 7.5% during the announcement period, and that more than 40% of the CEOs were replaced within 12 months. Moreover, we find that both the change in firm value and the likelihood of CEO turnover are 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 including private block holders in the ultimate ownership structure, which more closely aligns cash-flow rights with control rights.

Keywords: annual meeting, block holder, board of directors, cash-flow rights, control rights, corporate governance, incentive compensation, politics and finance, privatization, State ownership, State-owned enterprise, ultimate shareholder

JEL Classification: G32, G34, G38

Suggested Citation

Cole, Rebel A. and Berkman, Henk and Fu, Jiang Lawrence, From State to State: Improving Corporate Governance Where the Government is the Controlling Block Holder (November 12, 2002). Available at SSRN: https://ssrn.com/abstract=370140

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

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)

Jiang Lawrence Fu

Standard Charter Bank ( email )

Hong Kong
China

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