State Dominant and Non-State Dominant Ownership Concentration and Firm Performance: Evidence from China

This study investigates the relationship between firm ownership structure and performance for a comprehensive sample of firms listed in China over the period from 2000 to 2004. We find a convex relationship between the combined state ownership (both direct and indirect) and firm value, i.e. ownership by the state is beneficial at levels above approximately 35% but negative effects on value are observed at lower levels. The main focus of the paper relates to an analysis of effects of private block shareholders on value. We examine this issue both in an OLS and 2SLS equation framework which takes account of potential endogeneities in the ownership– performance relationship. We find evidence that the presence of large private blockholders in firms with no significant state holdings is detrimental to the performance of these firms.