Corporate Governance in China: An Analysis of Ownership Changes after the 1997 Announcement
24 Pages Posted: 3 Oct 2005
Date Written: August 2005
Ownership changes in state owned enterprises (SOEs) alter the ownership structure and in turn impact upon the corporate governance of the enterprises. Combined, these have been important considerations within the SOE reform process, particularly since the 1997 zhuada fangxiao commitment. The successful reform of SOEs is a significant factor in China's future economic prosperity and ability to contend with unemployment and social justice issues. Thus, the focus of this paper is firstly, the structure of ownership of publicly listed firms and secondly, the impact of ownership changes on SOEs in China immediately after the 1997 announcement.
The study found that there were no dramatic ownership changes or state divestment of listed SOE firms immediately after the 1997 announcement, in the years 1997 to 2000. The ownership structures of publicly listed companies slowly changed as state holdings reduced and private ownership increased. The finding is that the state continues to hold a supermajority and is not relinquishing control of the publicly listed enterprises with any haste or priority, despite the announcement. The trend appears to be in the direction of decreasing state holdings, though at a relatively slow rate. There were very few fully privately owned publicly listed firms in China.
The study identified 211 significant changes in the ownership structure of listed firms in the years 1997 to 2000. All of these changes involved the reduction of state holdings. The event study conducted in this analysis found that the market response to these changes is significant and positive. The results suggest that the market deems ownership change which reduces state holdings favorably and expects these changes to improve firm performance. Given that changes in ownership structure are found to be a decrease in state ownership, it is further posited that the market regards any ownership change that reduces state influence to be positive.
Keywords: corporate governance, ownership structures, ownership changes, event studies, emerging market, China
JEL Classification: G3, G32, G14, P31
Suggested Citation: Suggested Citation