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An International Meeting of American Accounting
Association
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Ultimate Shareholder, Government Control, and Firm Performance in China |
Chao Chen
California State University Northridge and Tsinghua University Beijing
Song Zhu
Tsinghua University Beijing
Abstract: This paper examines the influence of different characteristics of ultimate shareholders on the performance of listed companies in China. Control rights and ownership of state-owned enterprises (SOEs)are significantly larger than that of non-state owned enterprises (NSOEs), while the divergence of control rights and ownership is more severe for NSOEs. We also find that the relation between the control right of ultimate shareholders and firm performance is a reversed N shape. Our empirical results appear to be robust after controlling for the magnitude of control rights. The negative effect of the control chain for NSOEs is due to the fact that ultimate shareholders tend to exert less effort to their listed companies, thus resulting in a higher level of agency costs and worse performance as the agency chain grows longer. In contrast, the control chain, estimated by the layers which may be used as a proxy for decentralization, is positively related to the performance of SOEs.