DP4919 Retained State Shareholding in Chinese PLCs: Does Government Ownership Reduce Corporate Value?

Author(s): Saul Estrin, Lihui Tian
Publication Date: February 2005
Keyword(s): China, corporate governance, government shareholding
JEL(s): G15, G32, G34, L33
Programme Areas: Institutions and Economic Performance
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4919

The role of government shareholding in corporate performance is central to an understanding of China?s newly privatized large firms and the stock market. In this paper, we analyse shareholders as agents that can both harm and benefit companies. We examine the ownership structure of 826 listed corporations and find that government shareholding is surprisingly large. Its effect on corporate value is found to be negative, but non-monotonic. Up to a certain threshold, corporate value decreases as government shareholding stakes increase, but beyond this corporate value begins to increase. We interpret this in terms of ownership concentration and the advantages of government partiality.