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Control Transfers, Privatization, and Corporate Performance: Efficiency Gains in China's Listed Companies

Published online by Cambridge University Press:  06 April 2009

Gongmeng Chen ,
Michael Firth ,
Yu Xin  and
Liping Xu
Gongmeng Chen
Affiliation:
cgm@sjtu.edu.cn, Antai School of Management, Shanghai Jiaotong University, China
Michael Firth
Affiliation:
afmaf@ln.edu.hk, Department of Finance and Insurance, Lingnan University, Tuen Mun, Hong Kong
Yu Xin
Affiliation:
mnsxy@mail.sysu.edu.cn, School of Business, Sun Yat-sen (Zhongshan) University, Guangzhou, China
Liping Xu
Affiliation:
xuliping@mail.sysu.edu.cn, School of Business, Sun Yat-sen (Zhongshan) University, Guangzhou, China
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Abstract

We investigate performance effects for China's listed firms when there is a change in the controlling shareholder. These changes include ownership transfers from one state entity to another state entity and from a state entity to a private entity. We find positive performance effects when control is passed to a private entity. In contrast, when the transfer is made to another branch of the state, there is little change in performance. The stock market responds positively to a change in control, with the largest effect observed for private transfers. Our results suggest the Chinese government should continue to sell down its share ownership in listed firms as the transfer of control to private owners enhances corporate profitability and efficiency. Moreover, to help ownership reform, China should encourage an active market for corporate control.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 43 , Issue 1 , March 2008 , pp. 161 - 190
Copyright
Copyright © School of Business Administration, University of Washington 2008

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