IDEAS home Printed from https://ideas.repec.org/a/kap/jproda/v38y2012i3p303-318.html
   My bibliography  Save this article

Ownership structure, corporate governance and productive efficiency in China

Author

Listed:
  • Dongwei Su
  • Xingxing He

Abstract

This paper investigates whether and to what extent ownership structure and corporate governance affect productive efficiency in a sample of 744 publicly listed manufacturing firms in China between 1999 and 2006. The paper finds that firm efficiency, as estimated using stochastic frontier analysis and data envelopment analysis, is negatively related to state ownership while positively related to public and employee share ownership. In addition, the relationship between ownership concentration and firm efficiency is U-shaped, indicating that the largest shareholder may engage in tunneling activities. As the identity of the largest shareholder changes from government, government-controlled legal entity to other types of legal entity, firm efficiency significantly improves. These results provide strong evidence that political interferences have reduced firm efficiency. Moreover, firms with more independent board are more efficient, supporting the argument that board of directors can be an effective internal governance mechanism. Furthermore, provincial market development, a proxy for the strength of external governance mechanism, is positively related to firm efficiency. Overall, the findings illustrate that restructuring state-owned enterprises via improvements in corporate governance has enhanced firm efficiency, but partial privatization without transfer of ownership and control from the state to the public remains a major source of inefficiency in corporate China. Copyright Springer Science+Business Media, LLC 2012

Suggested Citation

  • Dongwei Su & Xingxing He, 2012. "Ownership structure, corporate governance and productive efficiency in China," Journal of Productivity Analysis, Springer, vol. 38(3), pages 303-318, December.
    • Handle: RePEc:kap:jproda:v:38:y:2012:i:3:p:303-318
    DOI: 10.1007/s11123-011-0257-8
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s11123-011-0257-8
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11123-011-0257-8?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Andrei Shleifer, 1998. "State versus Private Ownership," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 133-150, Fall.
    2. Michael L. Lemmon & Karl V. Lins, 2003. "Ownership Structure, Corporate Governance, and Firm Value: Evidence from the East Asian Financial Crisis," Journal of Finance, American Finance Association, vol. 58(4), pages 1445-1468, August.
    3. Simeon Djankov & Peter Murrell, 2002. "Enterprise Restructuring in Transition: A Quantitative Survey," Journal of Economic Literature, American Economic Association, vol. 40(3), pages 739-792, September.
    4. Clifford G. Holderness, 2003. "A survey of blockholders and corporate control," Economic Policy Review, Federal Reserve Bank of New York, vol. 9(Apr), pages 51-64.
    5. Fan, Joseph P.H. & Wong, T.J. & Zhang, Tianyu, 2007. "Politically connected CEOs, corporate governance, and Post-IPO performance of China's newly partially privatized firms," Journal of Financial Economics, Elsevier, vol. 84(2), pages 330-357, May.
    6. Shleifer, Andrei & Vishny, Robert W, 1997. "A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
    7. ,, 2004. "Problems And Solutions," Econometric Theory, Cambridge University Press, vol. 20(2), pages 427-429, April.
    8. Léopold Simar, 2007. "How to improve the performances of DEA/FDH estimators in the presence of noise?," Journal of Productivity Analysis, Springer, vol. 28(3), pages 183-201, December.
    9. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
    10. Boubakri, Narjess & Cosset, Jean-Claude & Saffar, Walid, 2008. "Political connections of newly privatized firms," Journal of Corporate Finance, Elsevier, vol. 14(5), pages 654-673, December.
    11. Denis, Diane K. & McConnell, John J., 2003. "International Corporate Governance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(1), pages 1-36, March.
    12. Jeffry M. Netter & William L. Megginson, 2001. "From State to Market: A Survey of Empirical Studies on Privatization," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 321-389, June.
    13. Léopold Simar & Paul W. Wilson, 1998. "Sensitivity Analysis of Efficiency Scores: How to Bootstrap in Nonparametric Frontier Models," Management Science, INFORMS, vol. 44(1), pages 49-61, January.
    14. Johnson, Simon & Boone, Peter & Breach, Alasdair & Friedman, Eric, 2000. "Corporate governance in the Asian financial crisis," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 141-186.
    15. Léopold Simar & Valentin Zelenyuk, 2011. "Stochastic FDH/DEA estimators for frontier analysis," Journal of Productivity Analysis, Springer, vol. 36(1), pages 1-20, August.
    16. Su, Dongwei, 2005. "Corporate finance and state enterprise reform in China," China Economic Review, Elsevier, vol. 16(2), pages 118-148.
    17. Fan, Yanqin & Li, Qi & Weersink, Alfons, 1996. "Semiparametric Estimation of Stochastic Production Frontier Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(4), pages 460-468, October.
    18. Kumbhakar, Subal C & Ghosh, Soumendra & McGuckin, J Thomas, 1991. "A Generalized Production Frontier Approach for Estimating Determinants of Inefficiency in U.S. Dairy Farms," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(3), pages 279-286, July.
    19. Li, Wei, 1997. "The Impact of Economic Reform on the Performance of Chinese State Enterprises, 1980-1989," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 1080-1106, October.
    20. Kumbhakar, Subal C. & Park, Byeong U. & Simar, Leopold & Tsionas, Efthymios G., 2007. "Nonparametric stochastic frontiers: A local maximum likelihood approach," Journal of Econometrics, Elsevier, vol. 137(1), pages 1-27, March.
    21. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer & Robert Vishny, 2002. "Investor Protection and Corporate Valuation," Journal of Finance, American Finance Association, vol. 57(3), pages 1147-1170, June.
    22. Valentin Zelenyuk & Vitaliy Zheka, 2006. "Corporate Governance and Firm’s Efficiency: The Case of a Transitional Country, Ukraine," Journal of Productivity Analysis, Springer, vol. 25(1), pages 143-157, April.
    23. Dahya, Jay & Dimitrov, Orlin & McConnell, John J., 2008. "Dominant shareholders, corporate boards, and corporate value: A cross-country analysis," Journal of Financial Economics, Elsevier, vol. 87(1), pages 73-100, January.
    24. Art Durnev & E. Han Kim, 2005. "To Steal or Not to Steal: Firm Attributes, Legal Environment, and Valuation," Journal of Finance, American Finance Association, vol. 60(3), pages 1461-1493, June.
    25. Rajiv D. Banker, 1993. "Maximum Likelihood, Consistency and Data Envelopment Analysis: A Statistical Foundation," Management Science, INFORMS, vol. 39(10), pages 1265-1273, October.
    26. Park, B. U. & Sickles, R. C. & Simar, L., 1998. "Stochastic panel frontiers: A semiparametric approach," Journal of Econometrics, Elsevier, vol. 84(2), pages 273-301, June.
    27. ,, 2004. "Problems And Solutions," Econometric Theory, Cambridge University Press, vol. 20(1), pages 223-229, February.
    28. Tian, Lihui & Estrin, Saul, 2008. "Retained state shareholding in Chinese PLCs: Does government ownership always reduce corporate value?," Journal of Comparative Economics, Elsevier, vol. 36(1), pages 74-89, March.
    29. Hung-jen Wang & Peter Schmidt, 2002. "One-Step and Two-Step Estimation of the Effects of Exogenous Variables on Technical Efficiency Levels," Journal of Productivity Analysis, Springer, vol. 18(2), pages 129-144, September.
    30. Simar, Leopold & Wilson, Paul W., 2007. "Estimation and inference in two-stage, semi-parametric models of production processes," Journal of Econometrics, Elsevier, vol. 136(1), pages 31-64, January.
    31. Gibson, Michael S., 2003. "Is Corporate Governance Ineffective in Emerging Markets?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(1), pages 231-250, March.
    32. Wei, Zuobao & Xie, Feixue & Zhang, Shaorong, 2005. "Ownership Structure and Firm Value in China's Privatized Firms: 1991–2001," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(1), pages 87-108, March.
    33. Battese, George E. & Coelli, Tim J., 1988. "Prediction of firm-level technical efficiencies with a generalized frontier production function and panel data," Journal of Econometrics, Elsevier, vol. 38(3), pages 387-399, July.
    34. Pitt, Mark M. & Lee, Lung-Fei, 1981. "The measurement and sources of technical inefficiency in the Indonesian weaving industry," Journal of Development Economics, Elsevier, vol. 9(1), pages 43-64, August.
    35. Greene, William H., 1990. "A Gamma-distributed stochastic frontier model," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 141-163.
    36. Martin Hovey & Larry Li & Tony Naughton, 2003. "The Relationship Between Valuation and Ownership of Listed Firms in China," Corporate Governance: An International Review, Wiley Blackwell, vol. 11(2), pages 112-122, April.
    37. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 2000. "Investor protection and corporate governance," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 3-27.
    38. Randall Campbell & Kevin Rogers & Jon Rezek, 2008. "Efficient frontier estimation: a maximum entropy approach," Journal of Productivity Analysis, Springer, vol. 30(3), pages 213-221, December.
    39. Lihui Tian & Saul Estrin, 2007. "Debt financing, soft budget constraints, and government ownership Evidence from China1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 15(3), pages 461-481, July.
    40. Fried, Harold O. & Lovell, C. A. Knox & Schmidt, Shelton S. (ed.), 2008. "The Measurement of Productive Efficiency and Productivity Growth," OUP Catalogue, Oxford University Press, number 9780195183528.
    41. Paul H. Malatesta & Kathryn L. DeWenter, 2001. "State-Owned and Privately Owned Firms: An Empirical Analysis of Profitability, Leverage, and Labor Intensity," American Economic Review, American Economic Association, vol. 91(1), pages 320-334, March.
    42. Sung-ko Li & Léopold Simar & Paul Wilson & Valentin Zelenyuk, 2008. "Introduction for Journal of Productivity Analysis special issue on transitioning economics," Journal of Productivity Analysis, Springer, vol. 29(2), pages 77-77, April.
    43. Megginson, William Leon, 2005. "The Financial Economics of Privatization," OUP Catalogue, Oxford University Press, number 9780195150629.
    44. Klein, April, 1998. "Firm Performance and Board Committee Structure," Journal of Law and Economics, University of Chicago Press, vol. 41(1), pages 275-303, April.
    45. Meeusen, Wim & van den Broeck, Julien, 1977. "Efficiency Estimation from Cobb-Douglas Production Functions with Composed Error," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 435-444, June.
    46. Lihui Tian & Saul Estrin, 2007. "Debt financing, soft budget constraints, and government ownership," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 15, pages 461-481, July.
    47. Stijn Claessens & Simeon Djankov & Joseph P. H. Fan & Larry H. P. Lang, 2002. "Disentangling the Incentive and Entrenchment Effects of Large Shareholdings," Journal of Finance, American Finance Association, vol. 57(6), pages 2741-2771, December.
    48. John Vickers & George Yarrow, 1991. "Economic Perspectives on Privatization," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 111-132, Spring.
    49. Kumbhakar, Subal C., 1987. "The specification of technical and allocative inefficiency in stochastic production and profit frontiers," Journal of Econometrics, Elsevier, vol. 34(3), pages 335-348, March.
    50. Claessens, Stijn & Djankov, Simeon & Lang, Larry H. P., 2000. "The separation of ownership and control in East Asian Corporations," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 81-112.
    51. Benjamin E. Hermalin & Michael S. Weisbach, 2003. "Boards of directors as an endogenously determined institution: a survey of the economic literature," Economic Policy Review, Federal Reserve Bank of New York, vol. 9(Apr), pages 7-26.
    52. Yingyi Qian, 1996. "Enterprise reform in China: agency problems and political control," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 4(2), pages 427-447, October.
    53. Wilson, Paul W., 2008. "FEAR: A software package for frontier efficiency analysis with R," Socio-Economic Planning Sciences, Elsevier, vol. 42(4), pages 247-254, December.
    54. Stevenson, Rodney E., 1980. "Likelihood functions for generalized stochastic frontier estimation," Journal of Econometrics, Elsevier, vol. 13(1), pages 57-66, May.
    55. Feng-Cheng Fu & Chu-Ping Vijverberg & Yong-Sheng Chen, 2008. "Productivity and efficiency of state-owned enterprises in China," Journal of Productivity Analysis, Springer, vol. 29(3), pages 249-259, June.
    56. Chen Lin & Dongwei Su, 2009. "Does state control affect managerial incentives? Evidence from china's publicly listed firms," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 10(4), pages 291-311, September.
    57. Boubakri, Narjess & Cosset, Jean-Claude & Guedhami, Omrane, 2005. "Postprivatization corporate governance: The role of ownership structure and investor protection," Journal of Financial Economics, Elsevier, vol. 76(2), pages 369-399, May.
    58. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
    59. Alice Shiu, 2002. "Efficiency of Chinese Enterprises," Journal of Productivity Analysis, Springer, vol. 18(3), pages 255-267, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Claudia Curi & Justas Gedvilas & Ana Lozano-Vivas, 2016. "Corporate Governance of SOEs and performance in transition countries. Evidence from Lithuania," BEMPS - Bozen Economics & Management Paper Series BEMPS36, Faculty of Economics and Management at the Free University of Bozen.
    2. Sickles, Robin C. & Song, Wonho & Zelenyuk, Valentin, 2018. "Econometric Analysis of Productivity: Theory and Implementation in R," Working Papers 18-008, Rice University, Department of Economics.
    3. Chen Lin & Yue Ma & Dongwei Su, 2009. "Corporate governance and firm efficiency: evidence from China's publicly listed firms," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(3), pages 1-1.
    4. Léopold Simar & Paul W. Wilson, 2015. "Statistical Approaches for Non-parametric Frontier Models: A Guided Tour," International Statistical Review, International Statistical Institute, vol. 83(1), pages 77-110, April.
    5. repec:hur:ijaraf:v:4:y:2014:i:2:p:98-108 is not listed on IDEAS
    6. Christopher F. Parmeter & Valentin Zelenyuk, 2019. "Combining the Virtues of Stochastic Frontier and Data Envelopment Analysis," Operations Research, INFORMS, vol. 67(6), pages 1628-1658, November.
    7. He, Yan & Chiu, Yung-ho & Zhang, Bin, 2015. "The impact of corporate governance on state-owned and non-state-owned firms efficiency in China," The North American Journal of Economics and Finance, Elsevier, vol. 33(C), pages 252-277.
    8. Rim Ben Hassen & Omri Abdelwahed, 2014. "Privatization of Tunisian Companies: A Study of Corporate Governance Mechanisms," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 4(2), pages 94-104, April.
    9. Uribe-Bohorquez, María-Victoria & Martínez-Ferrero, Jennifer & García-Sánchez, Isabel-María, 2018. "Board independence and firm performance: The moderating effect of institutional context," Journal of Business Research, Elsevier, vol. 88(C), pages 28-43.
    10. Trien Le & Amon Chizema, 2011. "State ownership and firm performance: Evidence from the Chinese listed firms," Organizations and Markets in Emerging Economies, Faculty of Economics, Vilnius University, vol. 2(2).
    11. Bao Hoang Nguyen & Robin C. Sickles & Valentin Zelenyuk, 2022. "Efficiency Analysis with Stochastic Frontier Models Using Popular Statistical Softwares," Springer Books, in: Duangkamon Chotikapanich & Alicia N. Rambaldi & Nicholas Rohde (ed.), Advances in Economic Measurement, chapter 0, pages 129-171, Springer.
    12. Luis R. Murillo‐Zamorano, 2004. "Economic Efficiency and Frontier Techniques," Journal of Economic Surveys, Wiley Blackwell, vol. 18(1), pages 33-77, February.
    13. Henk Berkman & Rebel A. Cole & Lawrence J. Fu, 2014. "Improving corporate governance where the State is the controlling block holder: evidence from China," The European Journal of Finance, Taylor & Francis Journals, vol. 20(7-9), pages 752-777, September.
    14. Ali M. Oumer & Amin Mugera & Michael Burton & Atakelty Hailu, 2022. "Technical efficiency and firm heterogeneity in stochastic frontier models: application to smallholder maize farms in Ethiopia," Journal of Productivity Analysis, Springer, vol. 57(2), pages 213-241, April.
    15. Valentin Zelenyuk & Zhichao Wang, 2023. "Random vs. Explained Inefficiency in Stochastic Frontier Analysis: The Case of Queensland Hospitals," CEPA Working Papers Series WP052023, School of Economics, University of Queensland, Australia.
    16. Omran, Mohammed, 2009. "Post-privatization corporate governance and firm performance: The role of private ownership concentration, identity and board composition," Journal of Comparative Economics, Elsevier, vol. 37(4), pages 658-673, December.
    17. Boubakri, Narjess & Cosset, Jean-Claude & Saffar, Walid, 2013. "The role of state and foreign owners in corporate risk-taking: Evidence from privatization," Journal of Financial Economics, Elsevier, vol. 108(3), pages 641-658.
    18. Subal C. Kumbhakar & Christopher F. Parmeter & Valentin Zelenyuk, 2022. "Stochastic Frontier Analysis: Foundations and Advances I," Springer Books, in: Subhash C. Ray & Robert G. Chambers & Subal C. Kumbhakar (ed.), Handbook of Production Economics, chapter 8, pages 331-370, Springer.
    19. Kuosmanen, Timo & Johnson, Andrew, 2017. "Modeling joint production of multiple outputs in StoNED: Directional distance function approach," European Journal of Operational Research, Elsevier, vol. 262(2), pages 792-801.
    20. Zeineb Barka & Taher Hamza, 2020. "The effect of large controlling shareholders on equity prices in France: monitoring or entrenchment?," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 24(3), pages 769-798, September.
    21. Massimo Del Gatto & Adriana Di Liberto & Carmelo Petraglia, 2011. "Measuring Productivity," Journal of Economic Surveys, Wiley Blackwell, vol. 25(5), pages 952-1008, December.

    More about this item

    Keywords

    Corporate governance; Ownership structure; Firm efficiency; Stochastic frontier analysis; Data envelopment analysis; D24; G30; P31;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • P31 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:jproda:v:38:y:2012:i:3:p:303-318. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.