Shareholding structure and corporate performance of partially privatized firms: evidence from listed Chinese companies

Abstract

Equity ownership in a listed Chinese firm can have as many as five different classes: state-owned shares, legal-person shares, tradable A-shares, employee shares, and shares only available to foreign investors, a phenomenon that is unique to the Chinese equity market In this paper, we investigate whether and how the corporate performance of listed Chinese firms is affected by their shareholding structure. The sample consists of all firms listed in the Shanghai Stock Exchange from 1991 to 1996 It is found that firm performance is positively related to the proportion of legal-person shares but negatively related to the proportion of shares owned by the state Additional analyses indicate that firm performance increases with the degree of relative dominance of legal-person shares over state shares. Moreover, for the sub-sample of firms that do not have both state and legal-person shares, the ROE of firms with legal-person shares but no state shares is higher than that of firms with state shares but no legal-person shares by 3.84 percent, and this difference is statistically significant On the other hand, there is little evidence in support of a positive correlation between corporate performance and the proportion of tradable shares owned by either domestic or foreign investors. These findings suggest that the ownership structure composition and relative dominance by various classes of shareholders can affect the performance of SOE-transformed and listed firms.