Asia-Pacific Financial Markets

, Volume 19, Issue 3, pp 233–258 | Cite as

Crossing the River by Touching Stones?: The Reform of Corporate Ownership in China

  • Wenwen ZhanEmail author
  • John D. Turner


The privatization of Chinese enterprises in a low-legal-protection environment raises the question as to how minority shareholders are assured that their capital will not be expropriated. This paper sheds some light on this issue by examining the influence of controlling shareholders on the corporate performance of listed firms from 1997 to 2006. The first main finding is that firms controlled by local governments are more valuable to minority shareholders, whereas firms controlled by individuals are less valuable. The second main finding is that the post-WTO-accession relinquishment of control from local governments to private shareholders appears to have reduced corporate performance.


Protection of minority shareholders Partial privatization China Insider expropriation 

JEL Classification

G32 G34 L33 P31 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Alchian A. A. (1965) Some economics of property rights. Il Politico 30: 816–829Google Scholar
  2. Allen F., Qian J., Qian M. J. (2005) The law, finance and economic growth in China. Journal of Financial Economics 77: 57–116CrossRefGoogle Scholar
  3. Arellano M., Bond S. (1991) Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economic Studies 58: 277–297CrossRefGoogle Scholar
  4. Arellano M., Bover O. (1995) Another look at the instrumental-variable estimation of error-component model. Journal of Econometrics 68: 29–52CrossRefGoogle Scholar
  5. Bai C. E., Liu Q., Lu J., Song F., Zhang J. (2004) Corporate governance and market valuation in China. Journal of Comparative Economics 32: 599–616CrossRefGoogle Scholar
  6. Blundell R., Bond S. (1998) Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics 87: 115–143CrossRefGoogle Scholar
  7. Cao Y. Z., Qian Y. Y., Weingast B. R. (1999) From federalism, Chinese Style, to privatization, Chinese style. Economic Transition 7: 103–131CrossRefGoogle Scholar
  8. Che J. H. (2002) Rent seeking and government ownership pf firms: An application of China’s township village enterprises. Journal of Comparative Economics 30: 787–811CrossRefGoogle Scholar
  9. Cheung N. S. (2008) The economic system of China. Arcadia Press Limited, Hong KongGoogle Scholar
  10. Chow G. C. (2007) China’s economic transformation. Blackwell Publishing, OxfordGoogle Scholar
  11. Claessens S., Djankov S., Lang L. (2000) The separation of ownership and control in East Asian corporations. Journal of Financial Economics 58: 81–112CrossRefGoogle Scholar
  12. Clarke, D. C., Murrell, P., & Whiting, S. (2003). The role of law in China’s economic development, In The George Washington University Law school working paper, No.187.Google Scholar
  13. Demsetz H. (1986) Corporate control, insider trading, and rates of return. The American Economic Review 76: 313–316Google Scholar
  14. Demsetz H., Lehn H. (1985) The structure of corporate ownership: Causes and consequences. Journal of Political Economy 93: 1155–1177CrossRefGoogle Scholar
  15. Djankov S., Murrell P. (2002) Enterprise restructuring in transition: A quantitative survey. Journal of Economic Literature 40: 739–792CrossRefGoogle Scholar
  16. Doukas J. (1995) Overinvestment, Tobin’s Q and gains from foreign acquisitions. Journal of Banking and Finance 19: 1285–1303CrossRefGoogle Scholar
  17. Dyck A., Zingales L. (2004) Private benefits of control: An international comparison. Journal of Finance 59: 537–600CrossRefGoogle Scholar
  18. Faccio M., Lang L. (2002) The ultimate ownership of Western Europe corporations. Journal of Financial Economics 65: 365–395CrossRefGoogle Scholar
  19. Green S. (2004) The development of China’s stock market, 1984–2002: Equity politics and market institutions. Routledge, LondonCrossRefGoogle Scholar
  20. Grossman S. J., Hart O. D. (1986) The cost and benefits of ownership: A theory of vertical and lateral integration. Journal of Political Economy 94: 691–719CrossRefGoogle Scholar
  21. Halverson K. (2004) China’s WTO accession: Economic, legal, and political implications. Boston College International and Comparative Law Review 27: 319–370Google Scholar
  22. Jensen M. C., Meckling W. H. (1976) The theory of the firm: Managerial behavior, agency cost and ownership structure. Journal of Financial Economics 3: 305–360CrossRefGoogle Scholar
  23. Jin H. H., Qian Y. Y., Weingast B. R. (2005) Regional decentralization and Fiscal incentives: Federalism, Chinese style. Journal of Public Economics 89: 1719–1742CrossRefGoogle Scholar
  24. Krueger A. O. (1974) The political economy of the rent-seeking society. American Economic Review 64: 291–303Google Scholar
  25. La Porta R., Lopez-de-Silanes F., Shleifer A. (1999) Corporate ownership around the world. Journal of Finance 54: 471–517CrossRefGoogle Scholar
  26. La Porta R., Lopez-de-Silanes F., Shleifer A. (2008) The economic consequences of legal origins. Journal Economic Literature 46: 285–332CrossRefGoogle Scholar
  27. La Porta R., Lopez-de-Silanes F., Shleifer A., Vishny R. W. (1998) Law and finance. Journal of Political Economy 106: 1113–1155CrossRefGoogle Scholar
  28. La Porta R., Lopez-de-Silanes F., Shleifer A., Vishny R. W. (2000) Agency problem and dividend policy around the world. Journal of Finance 55: 1–33CrossRefGoogle Scholar
  29. Lang L., Stultz R. M., Walkling R. A. (1989) Managerial performance, Tobin’s Q and the gains from successful tender offers. Journal of Financial Economics 24: 137–154CrossRefGoogle Scholar
  30. Li H., Zhou L. (2005) Political turnover and economic performance: The incentive role of personnel control in China. Journal of Public Economics 89: 1743–1762CrossRefGoogle Scholar
  31. Li H. B., Meng L. S., Wang Q., Zhou L. A. (2008) Political connections, financing and firm performance: Evidence from Chinese private firms. Journal of Development Economics 87: 283–299CrossRefGoogle Scholar
  32. Lorenzoni, G., & Walentin, K. (2007). Financial frictions, investment and Tobin’s Q. In National bureau of economic research working paper, No. 13029.Google Scholar
  33. Majumdar S. K., Sen K. (2006) The debt wish: Rent seeking by business groups and the structure of corporate borrowing in India. Public Choice 130: 209–223CrossRefGoogle Scholar
  34. Megginson W. L., Netter J. M. (2001) From state to market: A survey of empirical studies on privatization. Journal of Economic Literature 39: 321–389CrossRefGoogle Scholar
  35. Ng A., Yuce A., Chen E. (2009) Determinants of state equity ownership, and its effect on value/performance: China’s privatized firms. Pacific-Basin Finance Journal 17: 413–443CrossRefGoogle Scholar
  36. Qi D., Wu W., Zhang H. (2000) Shareholding structure and corporate performance of partially privatized firms: Evidence form listed Chinese companies. Pacific-Basin Finance Journal 8: 587–610CrossRefGoogle Scholar
  37. Qian Y.Y. (2003) How reform worked in China Chapter 11. In: Rodrick D (eds) In Search of prosperity.. Princeton Univeristy Press, PrincetonGoogle Scholar
  38. Qian Y. Y., Weingast B. (1997) Federalism as a commitment to preserving market incentives. Journal of Economic Perspectives 11: 83–92CrossRefGoogle Scholar
  39. Sarkar, P., & Singh, A. (2009). Law, finance and development: Further analyses of longitudinal data. Cambridge Journal of Economics 1–20.Google Scholar
  40. Silva L., Goergen M., Renneboog L. (2004) Dividend policy and corporate governance. Oxford University Press, OxfordCrossRefGoogle Scholar
  41. Steinfeld E. S. (1998) Forging reform in China: The fate of state-owned industry. Cambridge University Press, CambridgeCrossRefGoogle Scholar
  42. Sun Q., Tong W. (2003) China share issue privatization: The extent of its success. Journal of Financial Economics 70: 183–222CrossRefGoogle Scholar
  43. Tenev, S., & Zhang, C. L. (2002). Corporate governance and enterprise reform in China: Building the institutions of modern markets. Washington, DC: World Bank and the International Finance Corporation Publication.Google Scholar
  44. Tian L. H., Estrin S. (2008) Retained state shareholding in Chinese PLCs: Does government ownership always reduce corporate value?. Journal of Comparative Economics 36: 74–89CrossRefGoogle Scholar
  45. Walder A. G. (1995) Local governments as industrial firms: An organizational analysis of China’s transitional economy. American Journal of Sociology 101: 265–301CrossRefGoogle Scholar
  46. Wang X., Xu L. C., Zhu T. (2004) State-owned enterprises going public: The case of China. Economics of Transition 12: 467–488CrossRefGoogle Scholar
  47. Wei Z. B., Xie F. X., Zhang S. R. (2005) Ownership structure and firm valuation in China’s privatized firms: 1991–2001. Journal of Financial and Quantitative Analysis 40: 87–108CrossRefGoogle Scholar
  48. Williamson O. E. (1985) The economic institutions of capitalism. The Free Press, New YorkGoogle Scholar
  49. Wintoki, M. B., Linck, J. S., & Netter, J. M. (2008). Endogeneity and the dynamic of corporate governance. In University of Georgia working paper, No. 165.Google Scholar
  50. Wong S. (2006) China’s stock market: A marriage of capitalism and socialism. Cato Journal 26: 389–424Google Scholar
  51. Xu X. N., Wang Y. (1999) Ownership structure and corporate governance in Chinese stock companies. China Economic Review 10: 75–98CrossRefGoogle Scholar
  52. Yusuf S., Nabeshima K., Perkins D. H. (2006) Under new ownership: Privatizing China’s state owned enterprises. World Bank Publication, Washington, DCGoogle Scholar
  53. Zhao X. B., Tong C., Qiao J. M. (2002) China’s WTO accession, state enterprise reform, and spatial economic restructuring. Journal of International Development 14: 413–433CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC. 2011

Authors and Affiliations

  1. 1.Queen’s University Management SchoolQueen’s University BelfastBelfastNorthern Ireland

Personalised recommendations