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Separation of Control and Cash-Flow Rights of State Owned Listed Enterprises: Channels of Expropriation after the Discriminated Share Reform in China

Author

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  • Watanabe, Mariko

Abstract

Literature on agency problems arising between controlling and minority owners claim that separation of cash flow and control rights allows controllers to expropriate listed firms, and further that separation emerges when dual class shares or pyramiding corporate structures exist. Dual class share and pyramiding coexisted in listed companies of China until discriminated share reform was implemented in 2005. This paper presents a model of controller to expropriate behavior as well as empirical tests of expropriation via particular accounting items and pyramiding generated expropriation. Results show that expropriation is apparent for state controlled listed companies. While reforms have weakened the power to expropriate, separation remains and still generates expropriation. Size of expropriation is estimated to be 7 to 8 per cent of total asset at mean. If the "one share, one vote" principle were to be realized, asset inflation could be reduced by 13 percent.

Suggested Citation

  • Watanabe, Mariko, 2010. "Separation of Control and Cash-Flow Rights of State Owned Listed Enterprises: Channels of Expropriation after the Discriminated Share Reform in China," IDE Discussion Papers 224, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    • Handle: RePEc:jet:dpaper:dpaper224
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    File URL: https://ir.ide.go.jp/?action=repository_action_common_download&item_id=37946&item_no=1&attribute_id=22&file_no=1
    File Function: First version, 2010
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    Citations

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    Cited by:

    1. Erik P. M. Vermeulen, 2013. "Beneficial Ownership and Control: A Comparative Study - Disclosure, Information and Enforcement," OECD Corporate Governance Working Papers 7, OECD Publishing.

    More about this item

    Keywords

    China; Government Enterprises; Corporate Governance; Concentrated Owner; Expropriation; State Owned enterprises;
    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
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance
    • P31 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions

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