Will China's split share structure reform mitigate agency problems?

Abstract

China's unique split share structure has rendered its capital market more imperfect and agency problems more severe than those in other emerging markets. Since 2005, China has invested tremendous efforts to facilitate its split share structure reform (SSSR), undoubtedly the most influential institutional change in the development of China's stock market. Hence, the SSSR provides us with a valuable opportunity to examine whether the agency problems of listed firms in China have been mitigated via the implementation of SSSR. The sample is drawn from the firms listed on the Shenzhen and Shanghai Stock Exchanges that had completed the SSSR processes prior to the end of 2005. Covering the period from 2002 to 2008, the study finds that the SSSR does play a positive role in alleviating the agency problems of listed firms in China.