Incentive Contracting Versus Ownership Reforms: Evidence from China's Township and Village Enterprises

Posted: 3 Mar 2004

See all articles by Chun Chang

Chun Chang

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF)

Brian P. McCall

University of Minnesota - Twin Cities - Carlson School of Management

Yijiang Wang

University of Minnesota - Twin Cities - Carlson School of Management

Abstract

Using a data set that traces the ten-year history of 80 Chinese rural enterprises, known as township and village enterprises, we study the implications of introducing managerial incentives and better-defined ownership for a firm's financial performance. During this period, these mostly community-owned, local-government-controlled socialist collective firms first introduced managerial incentive contracts and then more clearly defined income and control rights. Managerial incentives have a positive but statistically insignificant effect on these firms' performance measured by the return on assets or return on equity. Performance is significantly better under ownership forms with better-defined property rights than under community ownership, even when the latter is supplemented with managerial incentive contracts.

JEL Classification: L33, P14, P31

Suggested Citation

Chang, Chun and McCall, Brian P. and Wang, Yijiang, Incentive Contracting Versus Ownership Reforms: Evidence from China's Township and Village Enterprises. Journal of Comparative Economics, Vol. 31, No. 3, pp. 387-594, September 2003, Available at SSRN: https://ssrn.com/abstract=512282

Chun Chang (Contact Author)

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

Shanghai Jiao Tong University
211 West Huaihai Road
Shanghai, 200030
China

Brian P. McCall

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

Yijiang Wang

University of Minnesota - Twin Cities - Carlson School of Management ( email )

321 19th Avenue South
Industrial Relations Center
Minneapolis, MN 55455
United States
612-624-6814 (Phone)
612-624-8360 (Fax)

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