Performance of Chinese Listed Companies With Respect to Ownership Structure

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TABLE OF CONTENTS

CHAPTER 01: INTRODUCTION1

1.1 Background of the Study1

1.2 Context and Governance Structures3

1.3 Governance and the Separation of Ownership and Control5

1.4 Reform of State Owned Enterprises and Ownership Structure in China7

1.5 Institutional Background8

1.6 Classification of Shareholders in China10

1.6.1 The State Shares11

1.7 The Development of the Chinese Stock Market12

1.8 Ownership Structure of Listed Chinese Companies13

1.9 Ownership Structure and Corporate Performance15

1.10 Key Propositions17

1.11 Aim and Objectives20

1.12 Research Questions20

1.13 Significance of the Study21

1.14 Specific Environmental Context21

1.15 Family business22

1.16 Research Paradigm23

1.17 Limitations of the Research24

REFERENCES26

CHAPTER 01: INTRODUCTION

1.1 Background of the Study

Developing nations in the world have been transforming their economies to systems that are market based. As a result, a number of ownership structures have been emerging in the private firms (Sun and Wilson, 2003, p. 183). For understanding the impact that privatization has on the ownership structures of the companies, scholars and researchers have used the agency theory for exploring the relationship that prevails between the performance of the firms and the ownership structures and the value of the firm (Jensen and Ruback, 1983, p. 5). Therefore, the results of these researches and studies are mixed, and at times they did not provide any conclusions. Some of the scholars suggested that there are other issues, for example, competition or legal environment, which should be a part of the equation that has been used for studying the relationship between performance and ownership (McConnel and Servaes, 1990, p. 595).

Thus, it is assumed that the findings, which are not concluded by the previous researches are attributable to different contexts of studies. Development path of China is an example, which is different from the development path of the nations in the Eastern Europe (Megginson and Randenborgh, 1994, p. 403). China has transformed itself without making changes to its political system, a situation that can explain why the government of China still has dominant ownership in the majority of the private firms (Bachiller, 2009, p. 289).

Chinese listed companies have different ownership structures. They can be broadly classified as this majority owned by the state, Sino-foreign joint ventures and private enterprises. The performance of Chinese listed companies has been influenced by the fact that not all of the shares are freely transferable in the open market. The Chinese government, though, has been allowing these so called 'legal person shares' to become formally transferable, a process that implies more liquidity (Banker and Charnes, 1984, p. 1078). Although, most of these shares remain ultimately controlled by the Chinese government, the presence of these institutional shares is believed to exert a positive effect on firm performance (Stiglitz 2001).

These influences also have an impact on firm performance as reflected by share prices, and this gap in the form of literature focuses on the proposed study. The research topic studies the relationship of Chinese listed state-owned companies before and after the program of stock reform. The program was meant to gradually and orderly unlock and free up 'legal person' shares, which were non-transferable so ...