Ownership Structure

  • 详情 Backing by the Paternalistic Government – The Social Responsibility of the SOE-Held Firms
    Research has argued that state-owned enterprises (SOEs) should bear more social responsibility than other listed firms, because their own goals include maintaining social stability and promoting social welfare. In contrast with the privatization of SOEs observed in other countries, in China, some listed firms’ major shareholders have become SOEs in recent years. This transition offers a good opportunity to investigate the impact of ownership change on firms’ corporate social responsibility (CSR). Using the propensity score matching difference-in-differences method, we document that the CSR performance of these firms does not improve when their ownership structure changes, and it can even worsen. Our results remain robust to a series of tests. Further investigating the underlying economic mechanism, we uncover those political connections, bank financing, and government subsidies play critical roles in determining the negative effect of ownership structure change on public firms, which is consistent with the soft budget constraint framework. In an additional analysis, we find that CSR performance is poor for manufacturing industry firms after ownership structure change. After calculating the frequency of keywords appearing in the annual reports of such firms, we find them to be satisfied with their new SOE background after ownership structure change. Our paper provides a possible explanation for the phenomenon of SOEs becoming major shareholder of listed firms.
  • 详情 The China-U.S. Equity Valuation Gap
    The Chinese earnings yield differential relative to the U.S. switches from negative to positive around 2009, with the aggregate variation masking substantial cross-sector variation. Changes in sectoral composition and (changing) growth expectations are not important determinants of the variation in China-U.S. valuation differentials. Instead, changes in ownership structure, and most importantly cross-sectional and temporal variation in financial openness, are the key contributors. In addition, we show that IPOs in the banking sector and its internationalization played a critical role in the (relative) valuation change.
  • 详情 Political Uncertainty and Revenue Sharing in International Contracting
    While previous research has delved into the relationship between political uncertainty and the aggregate cross-border flows of capital, there remains a notable gap in our understanding of how political uncertainty affects firm ownership structure within foreign direct investment (FDI) projects, specifically concerning the intensive margin. In this study, we commence by introducing a stylized model, wherein a risk-averse foreign investor teaming up with a local producer is concerned about the political risk associated with the provision of public goods by the local government. Our analysis demonstrates that the foreign investor, acting as a residual claimant, allocates a greater proportion of revenues to the local partner when local policy conditions are more uncertain. This strategic decision indirectly locks in local government commitment to the international joint venture, thereby mitigating the negative influence of political uncertainty. Subsequently, we test our theoretical framework by employing a unique dataset that encompasses city-level political turnovers and firm-level incentive structures in the context of China. The results unveil robust evidence substantiating that uncertainty arising from local political turnover significantly affects the revenue-sharing agreements between foreign investors and their local partners within the international joint production.
  • 详情 Modern Partnership System is a Booster for High-quality Development of Entrepreneurial Enterprises in the Era of Digital Intelligence
    In the era of digital economy, although the production (labor) tools of enterprises are digitalized, intelligent, and networked, and new characteristics and scenarios have emerged in enterprise operation and labor methods, the human capital possessed by workers has become the driving force for the sustainable development of entrepreneurial enterprises. Workers who master digital technology play a decisive role in the sustainable and healthy development of entrepreneurial enterprises. The article points out that in the era of digital economy, human capital is a key factor for economic growth and development. In the fields of mixed ownership and private economy, the employment system will gradually "retire", and modern partnership systems will prevail; The modern partnership system can motivate partners to collaborate and innovate, which is an upgrade of the manager system; The article briefly introduces the advantages and disadvantages of the dual ownership structure and the dynamic equity distribution mechanism of start-up companies; And the achievements made by Xiaomi Group, Huawei Company, and Midea Group in implementing a business partnership system.
  • 详情 Institutional Ownership and Stock Returns on Chinese Firms
    Using data on Chinese firms with the unique state ownership structure of stateowned enterprises (SOEs), we examine whether institutional investors can help reduce the required returns on equity for SOEs or non-SOEs, and if so, the underlying channels. We find that an increase in the shareholdings of institutions, especially independent institutions, can reduce the required returns. This effect is more prominent in non-SOEs than in SOEs, indicating that state ownership may limit the effect by which institutional investors reduce the required returns. In addition, institutional investors promote corporate social responsibility in invested firms and may thereby reduce the required returns on equity.
  • 详情 Corporate Social Responsibility Reporting in Family Firms: Evidence from China
    We examine whether family firms differ from nonfamily firms in their corporate social responsibility (CSR) reporting practice. Using a sample of Chinese firms, we find that, compared to nonfamily firms, family firms are more likely to have a system in place that guides the establishment and development of their CSR activities. Family firms are also more likely to adopt the GRI guidelines, and they disclose significantly more information about their CSR practice. The findings are consistent with the notion that family firms are more long-term oriented, and as a result, they are more concerned about firm reputation and use CSR disclosure as a means to establish and maintain a good reputation and to legitimize their behavior. We further find that the positive relation between family firms and CSR disclosure exists mainly in those firms with relative high state ownership, which helps mitigate government expropriation risk. Our research contributes to the limited literature on the relation between family firms and CSR practice. We also contribute to the literature on the impact of government expropriation risk and its interaction with firm ownership structure on firm behavior.
  • 详情 IPO Performance and the Choice of IPO Destination
    This paper compares Chinese firms’ IPO performance both in the short- and the long-run on domestic and overseas markets and investigates what factors determine the IPO destinations of Chinese firms. We find China’s domestic IPO market performs well over both time horizons, while some listings in the overseas market perform well in the long run except for small- and mid-cap listings in the US. Analysis based on a capital asset pricing model reveals IPO premiums and short-term returns are less affected by three common risk factors, while longer term returns are mainly driven by market fundamentals. Investigation of the drivers for Chinese firms’ IPO destinations using the binary choice model shows that firm specifics, institutional setups, and market characteristics influence the choice of IPO destinations. The prospect of a high IPO premium and strong trading in IPO shares are substantial drivers for firms to list their shares onshore. On the other hand, indicators of market size and profitability appear to have the highest predictive power for the likelihood of overseas listings, followed by firm’s ownership structure, IPO offering size and IPO underwriting costs. Institutional setups have the least predictive power for overseas listings. These results are in general robust to domestic delisting and IPO suspension events.
  • 详情 A Tale of Two Sectors: Implications of State Ownership Structure on Corporate Policies and Asset Prices in China
    We investigate the impact of state ownership structure on asset prices and corporate policies. By primarily focusing on China’s corporations, we show that the relationship between expected returns and capital investment varies significantly across state owned enterprises (SOE) and private owned enterprises (POE). A portfolio that longs low investment and shorts high investment firms earns an average annual excess stock return of 5% in the SOE sector. In contrast, there is no relationship between investment and expected returns in the POE sector. We show that the difference in the link between expected returns and investment across SOE and POE firms is driven by their differential exposures to the debt issuance shocks, which captures the monetary supply shocks in China. As SOE firms have easier access to bank loans, the high investment firms in the SOE sector are more able to raise debt despite that debt supply is shrinking, and hence they are less risky. We develop a dynamic model with SOE and POE firms facing different frictions in debt markets. The economic mechanism emphasizes that heterogeneous access to the debt market is an important determinant of equilibrium risk premiums across sectors with different state ownership.
  • 详情 Firm Headquarters Location, Ownership Structure, and Stock Return Co-movements
    This paper investigates the link between firm headquarters location and firm stock return co-movements in a sample of Chinese firms spanning the years 1999 to 2007. The empirical results show a strong co-movement pattern of firms located in the same province. Moreover, both firm-level and provincial-level factors are found to influence this co-movement, including firm size and ownership structure at firm level and GDP per capita and financial depth at provincial level. A subsample of firms listed in the Shenzhen Stock Exchange shows that better firm-level information quality reduces local co-movements.
  • 详情 Corporate governance and bidder returns: Evidence from China’s domestic mergers and acquisitions
    This study examines how corporate governance influences short-term and long-term bidder returns from China’s domestic mergers and acquisitions during 2001-2010. We examine a range of corporate governance measures covering ownership structure, board structure, insider ownership and managerial incentives while controlling for bidder and deal characteristics. Our initial results from events analyses show that market responses differ in ways which suggest a difference in how the market’s assessment of share price from the perspectives of short run and long run. Bidders obtain significant positive abnormal returns over the five-day event period but suffer significant wealth losses for two years following the deal completion. Our further analyses on factors driving the price difference show that executive ownership (positive) and state ownership (negative) exert opposite effects on the announcement period returns. The returns further differ by way of payments with positive (negative) effects from stock (cash) financing. Our long-term regression analyses show that the positive impact of executive ownership remains. Independent directors record a negative effect on abnormal returns. Nevertheless, board independence measured by the composite corporate governance index exerts a significant, positive effect on shareholder wealth. Our study highlights the need for the state to accelerate the share structure reform and formulate policies that encourage executive ownership and sound corporate governance.