Does Ownership Structure Matter? Evidence from the Excess Cash in China

Abstract

We examine the effect of corporate ownership structure on the market value of excess cash in Chinese listed firms. We find that state ownership has a positive effect, as the market value of excess cash is greater in state-owned firms (SOEs) than in privately controlled firms. Furthermore, we show that expropriation by controlling shareholders is significantly higher in privately controlled firms than in SOEs and increases with excess cash. The evidence is consistent with the view that the market believes private controlling shareholders are more likely to extract the private benefits associated with cash reserves.