Politician Control, Agency Problems, and Ownership Reform: Evidence from China

33 Pages Posted: 8 Apr 2003

See all articles by Lixin Colin Xu

Lixin Colin Xu

World Bank - Development Research Group (DECRG); World Bank - Development Research Group (DECRG)

Tian Zhu

Hong Kong University of Science & Technology (HKUST) - Division of Social Science

Yi-min Lin

Hong Kong University of Science & Technology (HKUST) - Division of Social Science

Multiple version iconThere are 3 versions of this paper

Date Written: July 2002

Abstract

Using data from a recent national survey on the ownership reform of state-owned enterprises in China, we study the effects of reducing politician control and agency problems on the financial performance of the reformed firms. Taking into account the endogenous nature of the reforms, we find that firm performance is positively affected by the lessening of politician control by increasing the firm's flexibility in labor deployment and by the mitigation of agency costs through the introduction of more effective corporate governance mechanisms such as one-share one-vote and shareholding-based board structure composition. Ownership structure also affects performance: relative to shareholding by the state, foreign ownership has a positive effect on firm performance; individual (mostly employee) shareholding has a negative effect; whereas the effect of collective and legal person shareholding is indistinguishable from that of state shareholding. Somewhat surprisingly, operating autonomy (excluding labor deployment flexibility) has a negative effect on firm performance, suggesting serious agency problems in the reformed enterprises.

Keywords: SOE reform, corporatization, corporate governance, ownership

JEL Classification: P21, P31, D23

Suggested Citation

Xu, Lixin Colin and Xu, Lixin Colin and Zhu, Tian and Lin, Yi-min, Politician Control, Agency Problems, and Ownership Reform: Evidence from China (July 2002). Available at SSRN: https://ssrn.com/abstract=368420 or http://dx.doi.org/10.2139/ssrn.368420

Lixin Colin Xu (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

1818 H Street NW
MSN3-311
Washington, DC 20433
United States

World Bank - Development Research Group (DECRG) ( email )

1818 H Street NW
MSN3-311
Washington, DC 20433
United States

Tian Zhu

Hong Kong University of Science & Technology (HKUST) - Division of Social Science ( email )

Division of Social Science
Clear Water Bay
Clear Water Bay, Kowloon
Hong Kong

Yi-min Lin

Hong Kong University of Science & Technology (HKUST) - Division of Social Science ( email )

Division of Social Science
Clear Water Bay
Clear Water Bay, Kowloon
Hong Kong

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