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Corporate governance and firm efficiency: evidence from China's publicly listed firms

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  • Chen Lin

    (Department of Economics and Finance, City University of Hong Kong, Hong Kong)

  • Yue Ma
  • Dongwei Su

    (Department of Finance, Jinan University, Guangzhou, China Corrections made here after initial online publication.)

Abstract

This paper applies a two-stage, double bootstrapping data envelope analysis approach to investigate whether and to what extent various distinctive corporate governance practices affect productive efficiency in a sample of 461 publicly listed manufacturing firms in China between 1999 and 2002. We find that firm efficiency 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 the presence of tunneling activities by the largest shareholder. Among three types of controlling shareholder, state exerts the most negative impact on firm efficiency, followed by state-owned legal entities. These results provide strong evidence that political interferences have reduced firm efficiency. It shows that the proportion of outside directors and the number of board meetings are positively associated with firm efficiency, suggesting 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, our 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 © 2008 John Wiley & Sons, Ltd.

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

Volume (Year): 30 (2009)
Issue (Month): 3 ()
Pages: 193-209

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Handle: RePEc:wly:mgtdec:v:30:y:2009:i:3:p:193-209

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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Cited by:
  1. Choon-Yin Sam, 2013. "Partial privatisation and the role of state owned holding companies in China," Journal of Management and Governance, Springer, Springer, vol. 17(3), pages 767-789, August.
  2. Liu, Jia & Lister, Roger & Pang, Dong, 2013. "Corporate evolution following initial public offerings in China: A life-course approach," International Review of Financial Analysis, Elsevier, Elsevier, vol. 27(C), pages 1-20.
  3. Mbuvi, Dorcas & Tarsim, Achraf, 2011. "Managerial ownership and urban water utilities efficiency in Uganda," MERIT Working Papers 036, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  4. Ngo My Tran & Walter Nonneman & Ann Jorissen, 2014. "Government Ownership and Firm Performance: The Case of Vietnam," International Journal of Economics and Financial Issues, Econjournals, vol. 4(3), pages 628 - 650.
  5. Tariq, Yasir Bin & Abbas, Zaheer, 2013. "Compliance and multidimensional firm performance: Evaluating the efficacy of rule-based code of corporate governance," Economic Modelling, Elsevier, Elsevier, vol. 35(C), pages 565-575.

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