Ownership Dynamics after Partial Privatization: Evidence from                         China

Huyghebaert, Nancy; Quan, Qi

doi:10.1086/655163

Cited by 17 publications

(8 citation statements)

References 45 publications

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“…Indeed, when legal persons are controlled by the Chinese state (central, provincial, or municipal), they probably will use their voting rights to pursue decisions that are in the best interest of the state. Conversely, independent legal persons could play a more active monitoring role (see also Huyghebaert & Quan, 2011).…”

Section: Corporate Governance Mechanisms In Chinamentioning

confidence: 99%

Expropriation of Minority Investors in Chinese Listed Firms: The Role of Internal and External Corporate Governance Mechanisms

Huyghebaert

Wang

2012

Corporate Governance

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128

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Manuscript Type: Empirical Research Question/Issue: We investigate how ownership structure, board characteristics, and regional differences in law enforcement and stock market development affect the conflict of interest between majority and minority investors in Chinese listed firms. For this purpose, we study related‐party transactions as well as labor redundancy, and classify firms as either state‐ or private‐controlled. Research Findings/Insights: We find that related‐party transactions grow more extensive as the wedge between the controlling shareholder's control rights and cash flow rights increases. Related‐party transactions also rise with voting rights held by the government in state‐controlled firms. Next, the state as controlling shareholder exacerbates labor redundancy. The control rights of the second to tenth largest investors can offset expropriation. Regarding board characteristics, we find that a larger fraction of directors affiliated with the dominant owner enlarges related‐party transactions, while large boards also increase labor redundancy in state‐controlled firms. We find only weak evidence that higher‐quality institutions help to restrain expropriation of minority investors. Theoretical/Academic Implications: In Chinese listed firms, a major conflict of interest arises between majority and minority investors. Also, the state may exercise its control rights to achieve imperative social and political objectives, to the detriment of external investors. Yet, as the stock market valuation and financial performance of state‐controlled firms rise with the fraction of shares held by the state, future research should better delineate the conditions under which state ownership is either detrimental or beneficial to firms. Next, the results indicate that governance mechanisms suggested by conventional agency theory are deficient in Chinese listed firms. Future research could therefore establish more clearly when internal and external governance mechanisms are likely to work, thereby also taking into account the identity of the controlling shareholder. Practitioner/Policy Implications: Investors should be aware that expropriation in Chinese listed firms has specific implications when the state is the controlling owner. Also, at this stage of development, independent directors and external governance mechanisms can hardly protect the best interests of minority investors. Rather, expropriation is counterbalanced when voting rights are concentrated in the hands of other large block holders. Policy makers should work on ownership restructuring, board independence, and institutional quality to better protect minority rights in Chinese listed firms.

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Section: Corporate Governance Mechanisms In Chinamentioning

confidence: 99%

Expropriation of Minority Investors in Chinese Listed Firms: The Role of Internal and External Corporate Governance Mechanisms

Huyghebaert

Wang

2012

Corporate Governance

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128

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“…A key feature of many Chinese listed firms is the dominance of former state-owned enterprises (SOEs) that became listed through share-issuing privatization, with the government retaining a significant stake after the firm's partial privatization (Huyghebaert and Quan, 2011). Indeed, the findings of many previous studies indicate the need/importance to differentiate the effects of political connections in SOEs versus privately controlled firms, especially in an environment where the government still controls the allocation of economic resources (see, e.g., Fan et al, 2007;Li et al, 2008Li et al, , 2012Chen et al, 2011;Wu et al, 2012).…”

Section: Introductionmentioning

confidence: 99%

Protection or expropriation: Politically connected independent directors in China

Wang

2015

Journal of Banking & Finance

155

152

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“…Gul et al (2010) find that 43% of the outstanding shares of Chinese firms are owned by the largest shareholder, among whom 66% are state-owned during the 1996-2003 period Huyghebaert and Quan (2011). also document that by 2005, the state and legal persons controlled nearly 80% of non-tradable shares of Chinese SOEs.…”

mentioning

confidence: 96%

Board independence, ownership concentration and corporate performance—Chinese evidence

Lü²,

Mittoo

et al. 2015

International Review of Financial Analysis

102

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Ownership Dynamics after Partial Privatization: Evidence from China

Cited by 17 publications

References 45 publications

Expropriation of Minority Investors in Chinese Listed Firms: The Role of Internal and External Corporate Governance Mechanisms

Expropriation of Minority Investors in Chinese Listed Firms: The Role of Internal and External Corporate Governance Mechanisms

Protection or expropriation: Politically connected independent directors in China

Board independence, ownership concentration and corporate performance—Chinese evidence

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