Ownership structure and corporate governance in Chinese stock companies

Abstract

This study investigates whether ownership structure significantly affects the performance of publicly listed companies in China within the framework of corporate governance. A typical listed stock company in China has a mixed ownership structure with three predominant groups of shareholders—the state, legal persons (institutions), and individuals—each holding approximately 30% of the stock. Ownership is heavily concentrated. The five largest shareholders accounted for 58% of the outstanding shares in 1995, compared with 57.8% in the Czech Republic, 79% in Germany, and 33% in Japan. Empirical analysis shows that the mix and concentration of stock ownership do indeed significantly affect a company's performance. First, there is a positive and significant correlation between ownership concentration and profitability. Second, the firm's profitability is positively correlated with the fraction of legal person shares, but it is either negatively correlated or uncorrelated with the fractions of state shares and tradable A-shares held mostly by individuals. Third, labor productivity tends to decline as the proportion of state shares increases. These results suggest the importance of large institutional shareholders in corporate governance, the inefficiency of state ownership, and potential problems in an overly dispersed ownership structure.