Ownership Structure, Corporate Governance, and Corporate Performance: The Case of Chinese Stock Companies

54 Pages Posted: 7 Dec 1997

See all articles by Xiaonian Xu

Xiaonian Xu

Amherst College

Yan Wang

Cornell University; African Development Bank

Date Written: May 1997

Abstract

This study investigates whether ownership structure has significant effects on the performance of publicly-listed companies in China, and in what way if it does. Publicly- listed stock companies allow us to quantify the ownership mix and concentration and thus provide a unique opportunity for studying the above issue. The recent literature on the role of large institutional shareholders in corporate governance provides the theoretical foundation of this study. A typical listed stock company in China has a mixed ownership structure with the state, legal persons (institutions), and domestic individuals as the three predominant groups of shareholders. Each holds about 30 percent of total outstanding shares. Employees and foreign investors together hold less than 10 percent. The ownership concentration is high with the five largest shareholders accounting for 58 percent of the outstanding shares in 1995, compared to 57.8 percent in Czech Republic, 42 percent in Germany and 33 percent in Japan. Results from our empirical analysis show that ownership structure (both the mix and concentration)indeed has significant effects on the performance of stock companies. First, there is a positive and significant correlation between ownership concentration and profitability. Second, the effect of ownership concentration is stronger for companies dominated by legal person shareholders than for those dominated by the state. Third, firms? profitability is positively correlated with the fraction of legal person shares, but it is either negatively correlated or uncorrelated with the fraction of state shares and tradable A-shares held mostly by individuals. Last, labor productivity tends to decline as the proportion of state shares increases. These results suggest the importance of large institutional shareholders in corporate governance and performance, the inefficiency of state ownership, and potential problems in an overly dispersed ownership structure.

JEL Classification: G3, O1, P5

Suggested Citation

Xu, Xiaonian and Wang, Yan, Ownership Structure, Corporate Governance, and Corporate Performance: The Case of Chinese Stock Companies (May 1997). World Bank Policy Research Working Paper No. 1794. Available at SSRN: https://ssrn.com/abstract=45303

Xiaonian Xu

Amherst College

Amherst, MA 01002
United States

Yan Wang (Contact Author)

Cornell University ( email )

Ithaca, NY 14853
United States

African Development Bank ( email )

Rue Joseph Anoma
Abidjan, Ivory Coast 01 BP 1387
Ivory Coast (Cote D'ivoire)

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