The relationship between valuation and ownership of listed firms in China

Abstract

This paper investigates the relationship between firm performance and corporate governance in China. Firm performance is measured by Tobin's Q, while corporate governance is determined based on ownership structure and concentration. Prior research, in both China and elsewhere, indicates that ownership structure and concentration have a significant impact on firm performance. The paper builds on previous studies by investigating the complex structure of different share classes that are typical of Chinese listed firms. The paper reports the results of an empirical study of a sample of firms listed on the Shanghai and Shenzhen stock markets over the period 1997-1999. The sample of firms selected represents a cross-section of industries, share classification, ownership type and ownership concentration. The paper reports a series of regressions that account for different specifications of firm valuation and ownership characteristics. The results indicate that ownership concentration has little explanatory power but ownership structure does matter. Legal person's shareholdings are positively related to firm valuation. The findings of the study are discussed in the context of the current enterprise reform process in China.