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The Class of Shareholdings and its Impacts on Corporate Performance: a case of state shareholding composition in Chinese public corporations

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  • Guy S. Liu
  • Pei Sun

Abstract

Does the class of shareholdings matter for corporate performance? To answer the question, the paper starts by classifying shareholdings of Chinese publicly listed companies on the basis of the principle of ultimate ownership. A state‐dominant shareholding structure is found, in that 81.6 per cent of companies are identified as ultimately controlled by the state. In contrast to our identified shareholdings, the Chinese official shareholding classification is ambiguous for the identification of ultimate controllers of public corporations, which in turn has misled many previous studies in assessing the impact of shareholding classes on performance. Based on our newly established shareholding classes, we undertake a nested performance comparison between these different classes and find significant evidence from the Chinese data that the class of shareholdings does matter for company performance. The least inefficient shareholding class is the holding companies that are wholly listed and have focused industrial business through the state indirect control of the downstream public corporations. This finding provides ground for us to think more about how the corporate control mechanism could be further improved in China's current corporate governance reform.

Suggested Citation

  • Guy S. Liu & Pei Sun, 2005. "The Class of Shareholdings and its Impacts on Corporate Performance: a case of state shareholding composition in Chinese public corporations," Corporate Governance: An International Review, Wiley Blackwell, vol. 13(1), pages 46-59, January.
    • Handle: RePEc:bla:corgov:v:13:y:2005:i:1:p:46-59
    DOI: 10.1111/j.1467-8683.2005.00402.x
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    References listed on IDEAS

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    1. Claessens, Constantijn A. & Djankov, Simeon & Joseph P. H. Fan & Lang, Larry H. P., 1998. "Diversification and efficiency of investment by East Asian corporations," Policy Research Working Paper Series 2033, The World Bank.
    2. Xiaonian Xu & Yan Wang, 1997. "Ownership structure, corporate governance, and corporate performance : the case of Chinese stock companies," Policy Research Working Paper Series 1794, The World Bank.
    3. Lihui Tian, 2001. "Government Shareholding and the Value of China's Modern Firms," William Davidson Institute Working Papers Series 395, William Davidson Institute at the University of Michigan.
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