The success of China’s non-tradable share reform

Abstract

This paper examines the impact of the Non-tradable Share (NTS) Reform on the financial and operating performance of China’s listed firms, using a sample of 563 state-owned enterprises (SOEs) that were partially-privatized through share issue privatizations (SIPs) from 1994 to 1998 and then carried out the NTS reform from 2005 to 2008. We find that the NTS reform has greatly improved firm profitability (measured by real net profit, real EBIT, return on sales and EBIT to sales), output (measured by real sales), operating efficiency (measured by real sales, real net profit and real EBIT per employee) and employment (measured by total employment). The positive effect of the NTS reform on firm operating performance is much stronger than that of the first round SIPs. The regression results show that the decrease of state ownership control is a significant determinant of the increase of firm profitability after the NTS reform.