Using a sample of China’s listed private firms we investigate the relationship between control-ownership wedge, bank connections and collateral requirement. We find that while control-ownership wedge relates to more pledged collateral, it is mainly the firm’s bank connections rather than its political connections that reduce the collateral requirement and weakens the positive relationship between the control-ownership wedge and collateral. We furhter find that the split-share structure reform and regions with high lender competition also require less collateral and weaken the positive relationship between the control-ownership wedge and collateral. We argue that in an emerging market where legal protection for creditors and investors are weak and relationship is prevalent, bank connections is a substitute for collateral through mitigating the information asymmetry and agency concerns by creditors, which has been further exacerbated due to the tunnelling risk by the controlling shareholders.

We examine how regulators tackle two types of widespread tunneling activities in China. Controlling shareholders and related parties can divert assets from listed firms or coerce firms to serve as guarantors on questionable loans. The government announced and enacted two new rules during the same period: the first rule prohibits asset diversion from listed firms for ‘non-operational’ purposes by large shareholders, while the second standardizes the practice of listed firms providing loan guarantees. Relative to firms not affected by either rule, firms complying with the first rule experience a reduction in the ownership stakes of controlling shareholders, an increase in investment, and significantly better performance. The second rule has no impact on firms. Our results highlight the importance of enforceability: laws and regulations that can be enforced at lower costs are much more likely to succeed, especially in countries with weak institutions.

We examine the impact of corporate ownership structure on the value of excess cash in Chinese listed firms. We find that the value of excess cash is less in firms controlled by private investors than in those firms controlled by the government. One dollar of excess cash is valued a $0.36 in firms controlled by private investors while it rises to $0.42 in firms controlled by the government. Furthermore, we show that the expropriation of the controlling shareholders is significantly and positively related with the previous year’s excess cash in firms controlled by private investors while it is insignificant in firms controlled by the government. These findings are consistent with the view that private controlling shareholders have the greater ability to extract private benefit in cash holdings.

We examine the dynamic adjustment of cash holdings of publicly traded Chinese firms over the period 1998-2006. The empirical evidences are supportive of the dynamic trade-off theory of cash holdings. Importantly, there is strong evidence to support asymmetric adjustments. That is, the adjustments from above the target are significantly faster than adjustments from below. In addition, adjustment speeds are heterogeneous for firms facing differential adjustment costs. In particular, adjustment speed is negatively related to firm size, but positively related to the deviation from the target. Furthermore, in terms of adjustment method, Chinese listed firms make adjustments to their targets primarily through internal financing, while debt financing and dividend payment play a minimal role. Finally, we find that the precautionary motive arising from financial constraints explains the cash holdings adjustment behaviors of Chinese Listed firms well.

Multiunit structure can internalize the managerial market to promote competition among subsidiary managers, and create an internal capital market within firms to alleviate external financing constrains, and it also may lead to diversification to lower the operation risk and regulation. While it brings in more agency problem created by subsidiary managers, causing the efficiency of internal capital market and diversification confusing. Using the data of listed firms in China, an emerging market, this paper examines the efficiency of multiunit structure within the firm, investigating the influence on capital allocation and firm performance. We find that multiunit structure is better in emerging market since it is efficient in capital allocation, reducing the inefficient investment by reducing the overinvestment and alleviating the underinvestment, and the bright side of multiunit structure dominates the agency problem associated, thus beneficial for firm performance, both short-term and long-term accounting returns. In less developed capital market under current situation, multiunit structure is better.

Various studies have been done on wealth effects and financial performance of firms in different countries but have yielded mixed results. Data on completed deals of Cross-border Mergers and Acquisitions (CBMAs) comprising public listed firms with more than ten percent of share acquisition in five East Asian countries were analysed using event study and key financial ratios. Although the results for average abnormal returns in Indonesia and Korea were inconclusive, the results for Malaysia, Thailand and the Philippines suggest that the market had reacted positively adding value to the target firms at merger announcements. There was a significant improvement in targets’ free cash flow after CBMAs when compared to both before CBMAs and also control firms after CBMAs. The results also reveal that that these five East Asian countries have moved towards more efficient markets.

We empirically examine the role of venture capital in VC-backed listed firms in Mainland China using the data of SME Board of ShenZhen Stock Exchange from June 2004 to June 2007. Contrary to the evidence from the US, we find that the VC-backed firms in Mainland China experience higher underpricing, which is not owing to the lower pricing in the primary market but the investors in the second market are too optimistic about the prospect of the VC-backed firms. In addition, the pre- and post-IPO operating performance of VC-backed firms is significantly better than that of nonVC-backed ones. Our finding supports the monitoring hypothesis that the VC-backed firms perform better than nonVC-backed firms before and after IPO for the monitoring of VC funds. Moreover, it is found that high-reputation VC-backed firms have a better post-IPO operating and market performance compared to low-reputation VC-backed ones, which is consistent with the grandstanding hypothesis proposed by Gompers (1996). However, there is no evidence to support the certification hypothesis proposed by Megginson and Weiss (1990) that VC-backed firms have a lower underpricing in the IPO performance.

This paper investigates the impact of ownership and ownership concentration on the performance of China’s listed firms. By recognizing the differences between ownership and ownership concentration and between total ownership concentration and tradable ownership concentration, we conduct simplex, interactive and joint analyses. We find that ownership concentration is approximately associated with higher firm performance. Ownership concentration is more powerful than any category of ownership in determining firm performance. Firm performance is better when the state is the largest of the top shareholders and/or institutions dominate ownership among the top tradable shareholders. Our results support the theory that high ownership concentration mitigates the agency problem.

Numerous studies have focused on the theoretical and empirical aspects of corporate capital structure since the 1960s. As a new branch of capital structure, however, debt maturity structure has not yet received as much attention as the debt-equity choice. We use the existing theories of corporate debt maturity to investigate the potential determinants of debt maturity of the Chinese listed firms. In addition to the traditional estimation methods, the system-GMM technique is used to explicitly control for the endogeneity problem. We find that the size of the firm, asset maturity and liquidity have significant effects in extending the maturity of debt employed by Chinese companies. The amount of collateralized assets and growth opportunities also tend to be important. However, proxies for a firm’s quality and effective tax rate apparently report mixed or unexpected results. Debt market and equity market conditions are also examined in relation to corporate loan maturity. The system-GMM results show that market factors seem to influence debt maturity decisions. Finally, corporate equity ownership structure has also been found to have some impact on debt maturity mix.

This paper investigates pay dispersion and its effects on firm performance in China’s listed firms. Due to weak investor protection and an inefficient legal system, China is expected to have a lower level of corporate governance. In this weak institutional environment, we argue that awarding sufficient power and high pay to CEOs is helpful to increase firm performance. Using data from 2002 to 2007, we find that pay dispersion is related to tournament incentives and agency factors. Importantly, we find evidence that pay dispersion is positively related to firm performance which is consistent with our primary hypothesis. In addition, the relation is more positive when the firm is controlled by the state. Our results are robust to corrections for endogeneity between pay dispersion and firm performance and to several alternative measures of pay dispersion and firm performance.