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Ownership structure and investment decisions of Chinese SOEs

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  • He, Wei
  • Kyaw, NyoNyo A.

Abstract

In this paper we examine the relation between ownership structure and overinvestment decisions by Chinese state owned enterprises (SOEs). We hypothesize that state owners, the largest block holders, are more committed to pursue their own sociopolitical agenda than maximizing wealth of its shareholders and show that the relation between state ownership and overinvestment is positive. We also hypothesize that managerial owners, who too receive non-negotiable shares, would discourage overinvestment lest it should inhibit the firm’s ability to pay dividends. Consistent with this hypothesis, we find a negative relation between management ownership and overinvestment. Conversely, our results show that the state ownership has a negative impact while managerial ownership has a positive effect on underinvestment decisions.

Suggested Citation

  • He, Wei & Kyaw, NyoNyo A., 2018. "Ownership structure and investment decisions of Chinese SOEs," Research in International Business and Finance, Elsevier, vol. 43(C), pages 48-57.
    • Handle: RePEc:eee:riibaf:v:43:y:2018:i:c:p:48-57
    DOI: 10.1016/j.ribaf.2017.07.165
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    More about this item

    Keywords

    Overinvestment; Ownership structure; Corporate governance; SOE;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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