Title: Shareholding Structure, Depoliticization, and Firm Performance: Lessons from China's Listed Firms
Reference Number: 1066
Publication Date: April 2003
JEL Classifcation: P26, P31, G38
Author(s):

Sonia M.L. Wong
The University of Hong Kong

Sonja Opper
Tübingen University

Ruyin Hu
Shanghai Stock Exchange

Abstract:

This study examines the performance implications of the involvement of grassroots organizations of the Chinese Communist Party (CCP) (hereafter referred to as local party committees) in the decision-making of China's listed firms. We obtained two results. First, we show that the decision-making power of local party committees relative to the largest shareholders is positively associated with firm performance. This suggests that party control helps contain the largest shareholders' agency problems and that the existing level of party control is insufficient when viewed from the perspective of controlling the largest shareholders. Second, we show that the decision-making power of local party committees relative to managers is negatively associated with firm performance. This suggests that political costs associated with party control over managers is more detrimental to firm performance than are managers' agency problems and that the existing level of party control is excessive when viewed from the perspective of controlling managers. On net, our results indicate that the existing level of party control is excessive and that reducing the decision-making power of local party committees tends to improve the performance of China's listed firms.

More:

Published in Economic Transition 12:1(2004), pp.29-66.

Key words: Political Control, Depoliticization, Corporate Performance, China's Listed Firms, Transitional Economy

PDF: The paper is no longer available here. Please refer to published source.
Last modified: 01/24/2007