The Rise of SASAC: Asset Management, Ownership Concentration, and Firm Performance in China's Capital Markets

Since the mid 1990s the State-Owned Assets Supervision and Administration Commission (SASAC) has emerged as a key institution governing firm ownership in China, but its impact on firm performance is understudied. Through an analysis of Chinese firms listed on the Shanghai and Shenzhen stock exchanges from 1994-2003, we examine how the changing ownership patterns following the rise of SASAC influenced firm performance. We have three findings. First, contrary to the popular view that state ownership in China's listed firms has declined, we find that the state shares have been moved from the original state offices to the SASAC in the format of ‘state institutional shares’. Second, compared with the old state shares, the SASAC institutions affect firm performance more positively. Third, after controlling for state and SASAC ownership, ownership concentration is a strong positive factor in firm performance. Our findings fit squarely within a long tradition of agency theorists who argue that ownership concentration helps solve the free-rider problem and thus has positive effects on firm performance. However, we focus on the ways in which ownership concentration allows firm owners to monitor and stabilize firm behaviour, which has more important implications for emerging economies such as China's domestic capital markets.