, Volume 23, Issue 4, pp 485-503
Date: 07 Dec 2006

Impact of state ownership and control mechanisms on the performance of group affiliated companies in China

Rent the article at a discount

Rent now

* Final gross prices may vary according to local VAT.

Get Access


This paper examines the moderating impact of state ownership and group control mechanisms on the relationship between diversification and performance of companies affiliated with large business groups in China. We find that the state ownership has enhanced the performance of group affiliated companies when they adopted higher degrees of diversification. We also find that cash flow rights have a positive impact on the performance of companies with lower degrees of diversification while in general group control rights have a negative impact on the performance. These results suggest that a group’s control mechanisms, derived from pyramid ownership structures, enable the dominant owners to expropriate the value from minority shareholders or tunnel corporate resources for their own interest.

We thank Editors Andrew Delios and Mike Peng, two reviewers, and participants at the special issue conference in Singapore in December 2005 for valuable comments and discussion. We acknowledge the sponsorship by APIB’s Funds for Small Projects 2005 and 2006, Chinese University of Hong Kong. Funding for conference attendance provided by the National University of Singapore and Asia Academy of Management is also appreciated.