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Improving corporate governance where the State is the controlling block holder: Evidence from China

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  • Berkman, Henk
  • Cole, Rebel
  • Fu, Lawrence

Abstract

We examine changes in market values and accounting returns for a sample of publicly traded Chinese firms around announcements of block-share transfers among government agencies (“State Bureaucrats”), market-oriented State-owned enterprises (“MOSOEs”) and private investors (“Private Entities”). We provide evidence that transfers from State Bureaucrats to Private Entities result in larger increases in market value and accounting returns than transfers to MOSOEs. We also find that CEO turnover occurs more quickly when shares are transferred to Private Entities. Moreover, we find that the changes in firm value and accounting returns, as well as the likelihood of CEO turnover, are all functions of the incentives and managerial expertise of the new block holder. We conclude that corporate governance can be improved at State-controlled firms by improving the incentives and managerial expertise of controlling block holders, and that this is better accomplished by transferring ownership to private investors rather than by shuffling ownership among Statecontrolled entities.

Suggested Citation

  • Berkman, Henk & Cole, Rebel & Fu, Lawrence, 2007. "Improving corporate governance where the State is the controlling block holder: Evidence from China," MPRA Paper 8088, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:8088
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    2. Lei, Adrian C.H. & Song, Frank M., 2011. "Connected transactions and firm value: Evidence from China-affiliated companies," Pacific-Basin Finance Journal, Elsevier, vol. 19(5), pages 470-490, November.
    3. Liu, Jinyu & Wang, Zhengwei & Zhu, Wuxiang, 2021. "Does privatization reform alleviate ownership discrimination? Evidence from the Split-share structure reform in China," Journal of Corporate Finance, Elsevier, vol. 66(C).
    4. Kashefi Pour, Eilnaz, 2015. "IPO survival and CEOs’ decision-making power: The evidence of China," Research in International Business and Finance, Elsevier, vol. 33(C), pages 247-267.
    5. Ying Wu & Hong Kim Duong & E. Libin & Hong Yao, 2021. "The ownership effect on corporate investment distortion in the transitional economies: Mitigating or exacerbating?," Review of Quantitative Finance and Accounting, Springer, vol. 57(2), pages 523-555, August.

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    More about this item

    Keywords

    block-holder identity; China; partial corporate control; partial privatization; privatization; State ownership; SOE;
    All these keywords.

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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