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Ultimate Control and Firm Performance: An Empirical Analysis
of Listed Firms in China
Working Paper
Jiaxin Wang [email protected]
Gulnur Muradoglu [email protected]
Deven Bathia [email protected]
2
Table of Contents
1. Introduction ....................................................................................................................................................................... 4
2. Literature Review ............................................................................................................................................................ 12
2.1 Ownership Structure and Firm Performance .................................................................................................................. 12
2.2 Ownership Structure in China ........................................................................................................................................ 14 2.2.1 Literature of Ownership Structure in China .................................................................................................... 14 2.2.2 The Characteristics of the Ownership Structure in China ............................................................................... 17
2.3 Hypothesis Development ................................................................................................................................................ 20
3. Data and Methodology .................................................................................................................................................... 26
3.1 Sample and Variables ..................................................................................................................................................... 26 3.1.1 Ownership Structure Classification ........................................................................................................................ 26 3.1.2 Distribution of Firm Types ..................................................................................................................................... 27 3.1.3 Ownership Variables .............................................................................................................................................. 29 3.1.4 Performance Measures ........................................................................................................................................... 30 3.1.5 Control Variables ................................................................................................................................................... 30
3.2 Methodology ................................................................................................................................................................... 30
4. Empirical Findings .......................................................................................................................................................... 32
4.1 Univariate Analysis ........................................................................................................................................................ 32
4.2 Effects of Controllers on Firm Performance .................................................................................................................. 33
4.3 Effects of Controllers on Firm Performances within Four Major Groups ..................................................................... 41
4.4 Effects of State Controllers on Firm Performances at Different Administrative Levels ................................................ 43
4.5 Effects of State Controllers on Firm Performances at within Groups ............................................................................ 44
4.6 Endogeneity .................................................................................................................................................................... 45
5. Conclusion ....................................................................................................................................................................... 46
Bibliography .............................................................................................................................................................................. 48
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Tables ......................................................................................................................................................................................... 55
Table 2.1 Literature about Chinese State Ownership ........................................................................................................... 55
Table 3.1 Ownership Classification ...................................................................................................................................... 60
Table 3.2 Distribution of Firm Type .................................................................................................................................... 61
Table 3.3 Results of Hausman Test for the Effect of Controllers on Firm Performance ..................................................... 61
Table 4.1 Summary Statistics of Firm Profitability Measures with Different Controllers Types ........................................ 62
Table 4.2 Summary Statistics of Firm Employment and Labour Productivity with Different Controllers Types ............... 63
Table 4.3 Summary Statistics of Firm Investment and Investment Efficiency with Different Controllers Types .............. 64
Table 4.4 Summary Statistics of Operating Efficiency and Firm Output with Different Controllers Types ....................... 65
Table 4.5 Significant Differences of Average Values of Firm Performances ...................................................................... 66
Table 4.6 Regression Results of the Effect of Controllers on Firm Profitability ................................................................. 67
Table 4.7 Regression Results of the Effect of Controllers on Employment and Labour Productivity ................................ 68
Table 4.8 Regression Results of the Effect of Controllers on Investment and Investment Efficiency ................................ 69
Table 4.9 Regression Results of the Effect of Controllers on Operating Efficiency and Output ......................................... 70
Table 4.10 Relationship between Controllers and Firm Performance .................................................................................. 71
Table 4.11 Regression Results of the Effect of Four Major Controllers on Firm Performance ........................................... 72
Table 4.12 Regression Results of the Effect of State Controllers on Firm Performance ..................................................... 73
Table 4.13 Regression Results of the Effect of Private Controllers on Firm Performance .................................................. 74
Table 4.14 Regression Results of the Effect of Foreign Controllers on Firm Performance ................................................. 75
Table 4.15 Regression Results of the Effect of SASAC, SOEs, Private Individual and Foreign Individual on Firm Performance .......................................................................................................................................................................... 76
Table 4.16 Regression Results of the Effect of State Controllers at Central and Local Levels on Firm Performance ........ 77
Table 4.17 Regression Results of the Effect of State Controllers at Central, Provincial and Municipal Level on Firm Performance .......................................................................................................................................................................... 78
Table 4.18 Regression Results of the Effect of SOEs as Controllers at Central and Local Level on Firm Performance .... 79
Table 4.19 Regression Results of the Effect of State Groups on Firm Performance ........................................................... 80
Table 4.20 Heckman Two-step Selection Model of Tobin Q ............................................................................................... 81
Table 4.21 Heckman Two-step Selection Model of Operating Revenue per Employee ...................................................... 81
Table 4.22 Heckman Two-step Selection Model of ROI ..................................................................................................... 82
Table 4.23 Heckman Two-step Selection Model of ROS .................................................................................................... 82
Appendix A. Explanation of Ownership Classification ............................................................................................................. 84
Appendix B. Firm Performance Measures ................................................................................................................................ 92
Appendix C. Control Variables .................................................................................................................................................. 95
Appendix D. Estimation Models ................................................................................................................................................ 96
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1. Introduction
The relationships between ownership structure and firm performance in publicly listed
companies are important concerns for decision-makers who are aiming to maximize firm
performance. In particular, as presented by Jensen and Meckling (1976) the existence of
information asymmetry and the divergence of interests between the principals and agents result
in the problems that adversely affect corporate performance and it has been proposed that the
main reasons for agency problems are the different ownership structure and different roles
people have in organisations. The agency costs are generated by the divergence between
owner-manager interest and those of the outside shareholders. Cao et al. (2011) discussed that
the controlling shareholders in the emerging markets obtain their control through voting rights
despite little percentage of cash flow rights. Chen et al. (2011) also point out that the controlling
shareholders have incentive to expropriate the interests of minority shareholders. A
disproportional ownership structure permits easier expropriation of the interests of minority
shareholders, which leads a firm's low value. Fan et al. (2011) further show that the
expropriation may ultimately be from the controlling shareholders and it could cost substantial
resources for the expropriation activities. In fact, the relationship between ownership and
financial performance might arise due to some company, industry and country characteristics.
Empirical studies have shed light on this issue and obtained conflicting results. Andres (2008)
indicates that family firms are more profitable than those with a dispersed ownership structure
or one controlling shareholder. Gugler et al. (2008) present that the managerial entrenchment
has a negative effect on firm performance and the insider ownership has a positive wealth effect.
The effects are much stronger in the U.S. than other countries. By analyzing the relation
between government ownership and the value of European firms during the global financial
crisis of 2008-2009, Beuselinck et al. (2017) show that the government ownership helps
alleviate financial shocks in countries with sufficient investor protection and low corruption.
5
Moreover, Chen et al. (2017) find statistically and economically significant evidence that state
ownership is negatively related to investment efficiency while the foreign ownership has a
positive effect. Nevertheless, Thomsen et al. (2006) point out that there is no effect of
blockholder ownership on firm value in Anglo-American market-based economies. In
continental Europe, high blockholder ownership has shown a significantly negative impact on
firm value and accounting profitability. Adrian Cheung and John Wei (2006) also find no
evidence of a relationship between corporate performance and insider ownership. The mixed
results from these studies imply that agency problem only arises when there are interest
conflicts between owner-manager and outsider shareholders.
China' economy experiences a sufficient expansion in recent years. The average growth rate of
GDP is 11% from 2000 to 2010 with a peak point of 14.2% in 2007 (CSMAR). The expanding
growth of economy and productivity is attributed to the economic reform in last two decades.
The economic restructuring process principally concentrates on the reform of state-owned
enterprises (SOEs). From the economic liberalization in the 1970s to the recent split share
reform in 2005, the reforms aim at deducting the state-owned shares and increasing the
performance of SOEs. In 1978 the first round of the reform focused on decentralization of
control rights and profits, completing the transition from planned economy to market economy.
Afterward, the second round of the reform in 1992 established the modern enterprise system
to improve the management of state-owned assets by reforming the shareholding scheme. The
state-owned enterprises benefit from the policy and resources, then progressively grow into
strong enterprises nowadays. However, rapid economic development concealed severe
problems of SOEs. As China's economic growth is slowing down, low operational efficiency,
disproportionate resource allocation and capacity expansion problem are gradually revealed.
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The enterprises in steel, coal, cement, glass, petroleum, petrochemical, iron ore, non-ferrous
metal, and other major industries suffered sufficient loss. The decline in profitability brought
the excess production problem to light. In 2015, President Xi Jinping set the Supply-side
Structural Reform as the main task for economic growth at the recent 19th National Congress
of the Communist Party of China (CPC). The reform includes cutting excess capacity,
destocking, deleveraging, reducing costs and shoring up weak areas, laying the base for future
reforms. SOEs bear the major economic, political, and social responsibility. President Xi
stressed that the government must unswervingly deepen the reform of SOEs and make the
SOEs act as a leading role on the supply side structural reform. This requires the policymakers
are aware of the accurate performance of different types of SOEs. The controllers of SOEs
scatter among various agencies, and each of them has different primary objectives. This paper
addresses the question that how the performance of listed firms in China is related to multiple
controllers.
State-controlled firms are distinguished for the acute owner-manager agency problems as the
interests of state-controller may not be aligned with those of outside shareholders (Firth et al.,
2010). There is growing literature investigating the effect of state ownership on firms'
performance by analysing the recent economic reforms in China. Sun and Tong (2003) estimate
the shifts in SOEs' performances in two stock exchanges regarding the share issuing
privatisation from 1994 to 1998. They find a negative impact of state ownership on the listed
firm after privatisation, but the legal person ownership is positively related to firms'
performance. The results imply that the legal person has the different incentive from the state.
Wei et al. (2005) examine the relation between ownership structure and firm value with a
sample of 5,284 firm years of partially privatized former SOEs in China from 1991–2001.
Their results show that state and intuitional shares are significantly negatively related to firm
7
value. Liao et al. (2014) establish that the SOEs experience a quicker increase in output, profit,
and employment than the non-SOEs after the split share reform. The findings suggest that the
performance of Chinese listed firms vary with the type of ownership.
Most previous literature adopted an unofficial mechanism, share types, to represent the nature
of shares held by the shareholders as the indicators for ownership. There are three major classes
of shares in the annual reports of listed companies in China - the state shares, held by the
government; legal person shares, held by state-controlled legal persons, or privately controlled
legal persons; shares owned by individuals and institutions, most of which are tradable A shares
(Conyon and He, 2011). This approach presents neither the diversity among shareholders nor
the ultimate owners of the shares. Legal person shares are not only held by privately-controlled
legal persons but also the state-controlled legal persons. Using the share types as the indicators
of ownerships fails to separate the state-owned legal person shares and private-owned legal
person shares. The owners of these two shares may perform differently when managing the
firms. The state shareholders cares more about the social stability than the interests of minority
shareholders, while the private shareholders are focusing on profitability.
Moreover, few studies distinguish the variation of influences among different governments and
agencies. The Board of Supervisors of Key and Large State-owned Enterprises points out that
the reform of SOEs is a complex system engineering, involving governments at all levels,
multiple departments, the central enterprises and local enterprises, state assets supervision
system to supervise enterprises, and other departments and units to supervise enterprises. (Ji,
2017) Bai et al. (2006) have provided a multitask theory of SOE reform in China. They argue
that the divergence of interests among different levels of government increases with the amount
of surplus labor. Lower-level (such as county or city) governments like to dump those SOEs
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that are laden with surplus labor and debts. This implies that, with privatization of SOEs
affiliated with the county or city governments, there will be substantial layoffs of surplus
workers and massive write-offs of bad loans. In contrast, higher-level (provincial or central)
governments care more about social stability, and they are reluctant to let go those SOEs whose
privatization would lead to labor layoffs and loan write-offs. This implies that there may not
be any decrease in employment or debts with privatization of SOEs affiliated with the
provincial or central governments. The third plenary session of the 18th CPC Central
Committee also emphasized to define different capabilities of the state-owned enterprise. As
the controller principally decides the operation mode of the firms, identification of roles of
SOEs' controllers is necessary. This paper investigates the ultimate owners of different types
of shares and classifies them into 21 categories to examine their accurate impacts on firms'
performance.
The paper investigates the ultimate controller of each listed firm and categorizes them based
on the administrative level, function and objective. The ultimate controller is identified by the
information disclosed in the annual report of the listed company. According to the Measures
for the Administration of the Takeover of Listed Companies, a person/entity can actually
control a listed firm if satisfying either of the following conditions (CSMAR): the person/entity
holds the largest number of shares of all registered shareholders unless there are evidences that
can prove the opposite; or the person/entity has the power to exercise or control more voting
rights than those of the largest shareholder; or the person/entity has the power to exercise or
control 30% or more of the firm’s shares or voting rights unless there are evidences that can
prove the opposite; or the purchaser has the power to decide the election of more than half of
the directors; or other circumstances as determined by the CSRC. The ultimate controllers in
China use pyramid structure, cross-holding and other methods to obtain the control rights over
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the listed firm. I trace the control chains to find the entity/person which dominate at the top of
pyramid and identify them based on their characteristics.
In the paper the controllers firstly are identified at different administrative levels. The current
administrative regions in China include three levels: Province, Municipality and Town. The
controllers directly affiliated to the State Council (the central government) or departments of
the State Council are regarded as Central. Because of the availability of listed firms’
information in CSMAR, the study adopts two official administrative regions’ levels: Province
and Municipality and treats them as local. Thus, there are three administrative levels in the
study: Central, Province and Municipality. Secondly, among the governmental agencies, asset
bureaus and other governmental departments need to be distinguished. The asset bureau refers
to the central and local State-owned Assets Supervision and Administration Commission of
the State Council (SASAC) and other asset management departments. SASAC and local
SASAC are the most common asset management bureaus in China. The State-owned Assets
Supervision and Administration Commission of the State Council (SASAC) is a commission
of China and the only ad hoc governmental agency directly under the state council. The SASAC
performs investor's responsibilities, supervises and operates the state-owned assets, and
enhances the management of the state-owned assets. SASAC is acting on behalf of the state
council and takes charge of the daily management of the supervisory panels. Other government
departments may have different responsibilities. The government departments like finance
ministry are following the requirements of the State Council to implement the task-based
methods to support and promote the economic development and transformation, while the
SASAC is responsible for operating state-owned assets.
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The main contributions of the paper are as follows. First, the paper employs a new classification
scheme for ownership structure in Chinese listed firm. The scheme is developed by following
two principles: identifying the ultimate owners and distinguishing their objectives. It classifies
the shareholders into four major categories, state, foreign, private and other. The state
ownership is further divided into 14 sub-categories based on the administrative level, function
and objective, namely Central State-owned Enterprise, Local State-owned Enterprise, Central
Department, Provincial Department, Municipal Department, Central Asset Bureau, Provincial
Asset Bureau, Municipal Asset Bureau, Central SASAC, Provincial SASAC, Municipal
SASAC, Provincial Government, Municipal Government, Public Institution. The foreign
category includes Foreign Individual and Foreign Enterprise. The private ownership comprises
Private Individual and Private Enterprise. Other ownership such as Operating Unit,
Collectively-owned Enterprise and Social Organization are classified into other. The scheme
not only identifies the ultimate owners of a certain type of shares but also separates the state
ownership to provide an accurate and comprehensive analysis of the effect of state and agencies.
Second, the study applies a sample of latest data from CSMAR from 2003 to 2016 and various
performance measures to investigate the ownership-performance relation. SOEs plays a
significant role in the recent supply side structural reform, it is important to find out how the
SOEs' performance indexes vary with different ownership structures. The study uses various
indicators for performance measures, including profitability, employment, labour productivity,
investment, investment efficiency, operating efficiency and firm output. These performance
measures could help decision makers to decide how and which enterprises to be reformed.
The empirical results of the paper show that the effect of the state, foreign and private
controllers vary with the proxies for the firm performances. Most state controllers have
negative impacts on profitability and labour productivity, but central and municipal SASAC
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are positively related to employment. Moreover, high administrative-level state controllers and
SASACs perform better. The findings imply that policy-makers should focus on SOEs’
profitability and labour productivity and improve the performances. For certain SOEs, such as
those controlled by public institution and provincial asset bureau, their operating efficiency
needs to draw more attention. Besides, the governments should provide more financial and
political supports for local and small SOEs.
The rest of the study is organized as follows. Chapter 2 is the review of literature about
ownership and firm performance and the ownership structure in China. Chapter 3 describes the
data and methodology. Chapter 4 provides the empirical findings. Chapter 5 concludes the
paper.
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2. Literature Review
2.1 Ownership Structure and Firm Performance
The effect of ownership structures on firm performance has been investigated extensively in
the theoretical and empirical literature (Anderson et al., 2003; Anderson and Reeb, 2003;
Andres, 2008; Benson and Davidson, 2009; Himmelberg et al., 1999; Maury, 2006; Pound.
1991; Woidtke, 2002). In listed firms, the separations of ownership and control always give
rise to severe agency problems. The agency problem arises when there is a conflict of interests
between the managers and owners. Managers tend to take risk in investments to maximize the
firm value, while the owners prefer to personal profits. Concentrated ownership can help
mitigate the agency conflicts by aligning the monetary incentives of the manager with other
investors. Even the controlling shareholders do not participate in management, they are capable
of monitoring and directing managers. The agency problems can be decreased by monitoring.
Compared with small investors, large shareholders have the incentives and capabilities to
monitor the actions of managers and reduce agency costs. However, concentrated ownership
could bring potential losses. Large shareholders principally satisfy their own interests instead
of other investors. This means large shareholders may use their power to pursue personal
benefits, even at the cost of other shareholders' profits. It is uncertain whether large
shareholders behave in favour of minority shareholder. Moreover, efficient markets will result
in optimal and firm-specific ownership structure. Corporations with inefficient ownership
structures cannot survive in the market competitions. Thus, there should be no relation between
ownership structure and firm performance. In fact, empirical studies about different types of
controlling shareholders cannot reach the agreement about the effect of ownership on firm
performance.
13
In the U.S., family-controlling firms tend to have higher valuations and profitability than
nonfamily-controlling firms (Anderson and Reeb, 2003). Using a sample of 1672 non-financial
firms from 13 Western European countries, Maury (2006) shows that the active family control
increases firms' valuations and profitability while the passive family control has no effect on
profitability. The results imply that family control can reduce the agency problem between
owners and managers but gives rise to conflicts of interests between the controlling family and
minority shareholders. Himmelberg et al. (1999) find no significant effect of managerial
ownership on firm performance. However, using a sample of data from 1995 to 2003 in the
U.S., Benson and Davidson (2009) present a significant inverted U-shaped relation between
managerial ownership and firm performance. Pound (1991) explains that institutional investors
as large shareholders have a positive effect on firm value. However, institutional investors are
also the agents with their own agency problems. For example, the public pension funds are
usually managed by officials and their interests may not be aligned with other shareholders'.
Researches about the effect of state ownership have mixed findings. Several scholars present
that state ownership has a positive effect compared with other ownerships. Goldeng et al. (2008)
find that the performance of SOEs is inferior to that of private-owned enterprises (POEs) after
controlling for the market structure in Norway with a sample period from 1990 to 1999. After
examining a sample of 506 non-financial firms privatized in 64 countries over 1981 to 2008,
Chen et al. (2017) find that statistically and economically significant evidence that state
ownership is negatively related to investment efficiency. They also show that the investment
efficiency and foreign ownership is positively related.
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The effect of different types of ownership on firm performance varies. If the controllers have
strong incentives to monitor and supervise managerial processes, the interests of investors and
managers would be converged, and agency conflicts decrease. In contrary, large shareholders
may pursue personal benefits and minority investors are expropriated. The firm's value will
suffer a decrease. Of all the dominant shareholders in listed firms, the government is the most
powerful and significant controller. It not only has the voting right to control the executive
board, but also the political ability to benefit the firm. The ownership structure in China is
distinguished from other countries as it usually has one dominant shareholder - state. Next part
will introduce the state ownership in China and its characteristics.
2.2 Ownership Structure in China
2.2.1 Literature of Ownership Structure in China The ownership structure of China's listed firms is distinct. Publicly traded firms normally have
a single dominant shareholder. Government is the most common dominant shareholder in
Chinese listed firm. When the two major stock exchanges established in China, only one-third
shares were tradable. The other two-thirds nontradable shares were held by the state and legal
person. After realizing the deficiency of the split share structure, namely tradable and
nontradable share structure, the Chinese government implemented the Split Share Reform from
2005 which will be discussed in next chapter. After the reform, almost all firms had established
a detailed timetable to convert all non-tradable shares to tradable shares. Even though the
nontradable shares which were held by state and legal person became tradable, the government
still hold a significant proportion of the shares in list firms. State ownership is significant in
Chinese listed firms and draws attention from researchers. Previous literature has shed lights
on the effect of state ownership, but none of them adopt a unified classification of the
ownership.
15
Sun and Tong (2003) estimate the performance changes of SoEs regarding the share issuing
privatisation from 1994 to 1998. They find that SoEs' performance including profitability,
productivity and sales is improved by the privatisation. The results also show that state
ownership is negatively related to firm performance and legal person ownership has a positive
effect on firm performance. The study uses the share types as the proxies for ownership
structure, for instance, state shares as state ownership, legal person share as legal person
ownership.
Wei et al. (2005) show that state shares are significantly negatively related to firm
performances by investigating a sample of Chinese listed firms from 1991 to 2001. In the
research, Wei et al. (2005) mainly study three types of concentrated ownership, specifically
state, legal person and foreign. They also use the share types which are discussed in the
previous part to classify the ownership structure. Moreover, they treated the legal person shares
as the intuitional share based on the argument that legal person shares are commonly held by
domestic legal entities, including domestic mutual funds, insurance firms, government
agencies, and other companies.
Unlike other literature, Firth et al. (2010) study the roles played by state and mutual funds
shareholders in the split share reform from 2005. The results imply that state ownership is
positively related to the final compensation ratio, while the mutual fund ownership has a
negative effect on the compensation ratio. In other words, state shareholders have greater
incentives to promote the reform than institutional shareholders. The study also adopts the
share types as ownership classification. It defines the state ownership as the number of the
firms' shares owned by state-controlled entities and the mutual fund ownership as the tradable
16
shares held by mutual funds, divided by the total outstanding shares before the reform,
respectively.
Liao et al. (2014) also study the split share reform in China. They show that the SoEs
experience a quicker boost in output, profit, and employment than the non-SoEs. The research
classifies a firm as SOE if the ultimate controller is the state, otherwise non-SOE. Listed firms
disclose the ultimate controller parties in annual financial reports. It also uses the ratio of the
number of state-owned shares to the number of total shares outstanding as a proxy for state
ownership.
Chen et al. (2008) investigate performance changes in Chinese listed firms when there is an
ownership transfer in the controlling shareholder from 1996 to 2000. They conclude that firms
performance is positively improved when the control is transferred to a private entity. However,
there are little changes in the firm performance when the control is passed to another
government agency. The results imply that private control is more beneficial to the firms than
state control. The study employs share types like state and legal person share as the proxy for
state ownership as well.
Cull et al. (2015) study the role of firms' government connections in determining the severity
of financial constraints faced by Chinese firms. Government connection is defined by
government intervention in CEO appointment and the status of state ownership. The research
defines firms' ownership type based on the response to the corresponding question in the
questionnaire. The finding implies that government connections are related to financial
constraints and large non-state firms with weak government connections are especially
financially constrained.
17
The Table 2.1 summarizes the literature about the effect of state ownership in Chinese listed
firms and the proxies used for the ownership classification. From the table, we can see most
literature adopt the share types to represent the ownership structure in the firms. For example,
state shares which are owned by the state are treated as state ownership, legal person shares
held by the legal person entities are classified as legal person ownership (some literature treat
legal person shares as institutional ownership). However, as discussed in the previous part,
legal person shares could be held by different entities such as government agency and
institutions. Simply classifying legal person shares as one type of ownership without
investigating the ultimate holders of these shares may lead to inaccurate results.
Insert Table 2.1
2.2.2 The Characteristics of the Ownership Structure in China China as an emerging market country established its stock market two decades ago. The market
is far from mature compared with the developed countries. The ownership and control structure
in Chinese has its unique characteristics.
First of all, the equity of listed companies is highly concentrated. The average shareholding
rates of the largest shareholder and top three shareholders are 39.98% and 52.23% respectively
in 1995. (CSMAR) The rates increase in 2005 and are 40.10% and 53.76%, respectively.
Secondly, non-tradable shares account for large proportion in listed firms. The largest
shareholder of listed companies is normally a holding company, rather than a natural person.
Most of China's listed company is transformed from former state-owned enterprises, collective
enterprises and private enterprises. The state and legal persons convert a part of the original
18
assets to the non-tradable shares of listed companies. The former enterprise act as the holding
company of the listed firm in the pyramid structure.
Thirdly, listed firms controlled by enterprise group account for large proportion. Most of the
listed companies belong to the enterprise group and are the core competitive enterprises in the
group. The formation of this pattern is due to state-owned enterprise shareholding system
reforms. The original enterprises are merged as group or high-quality assets of original
enterprise group are integrated for listing.
Fourth, the ultimate controllers exist in the listed firms. La Porta et al. (1999) is the first study
that investigates the issue of ultimate control. They trace the chain of ownership to find who
has the most voting rights. Claessens, Simeon and Lang (2000) investigate the separation of
ownership and control for 2,980 corporations in nine East Asian countries. In all countries,
voting rights frequently exceed cash flow rights via pyramid structures and cross-holdings.
Specifically, the Chinese authorities build a “the government and the department of state-
owned assets management - state-owned capital investment and operation companies – listed
firms” three-level control structure. The system structure is similar but also distinguished with
Zhou and Lian’s (2016) three-level hierarchical organization model. Specifically, the three-
level control structure includes: First level (principal) is the administration of the state-owned
asset, such as government, SASAC, asset management bureau etc. They mainly perform the
assets administrative functions. Second level (manager) is the management and operation of
the state-owned asset, such as the state-owned capital investment and operation companies.
They help the government agencies to raise the capital for investment and exercise part of the
shareholders’ rights entitled by the principal. Third level (agent) is the direct controlling
19
shareholders of the listed firms. They are the large shareholders in the listed firm and are
engaged in the professional state-owned assets/capital operation relying on the market
mechanism. They are responsible for increase state-owned assets value and create profits for
the principal. Figure 2.1 presents the three-level control structure of listed firms.
Figure 2.1 Three-Level Control Structure of Listed Firms.
Similar with the Zhou and Lian’s (2016) conceptualization of the control rights, the rights of
three-level control structure in the study can also be divided in to three dimensions: Firstly,
target enactment right is held by the administration level. For example, the SASAC establishes
and improves the index system for preservation and increase of the value of state-owned assets.
The documents issued by the SASAC include management of SOEs’ shares, assets and
dividends, as well as the targets of the central government such as employment stabilization.
Secondly, inspection & acceptance right is also held by the administration level. The inspection
& acceptance right is affiliated to the target enactment right. After setting the targets, principal
can exercise their inspection & acceptance right regularly. The SASAC periodically
investigates the performance of state-owned listed firms, and also maintain the rights to collect
20
the dividends. Thirdly, incentive distribution right is held by both administration and
management levels. The SASAC or other asset management bureaus have the responsibilities
to set incentives and evaluation mechanism. The resources allocation is normally decided by
the state-owned assets management companies. As the principal, the ultimate controller
integrates the target enactment right, inspection & acceptance right and incentive distribution
right which give the ultimate controller the power to affect firm performances.
2.3 Hypothesis Development The deputy director of the SASAC, Shuhe Huang, summarized the process and results of the
central enterprises fulfilling social responsibility at the press conference on 3rd August 2010.
(SASAC Website) Since the establishment, the SASAC pays close attention to corporate social
responsibility, actively promotes the central enterprise to perform social responsibility and
achieves new progress and success. SASAC carries out the national macroeconomic regulation
and control policy to ensure a smooth economic and social development. For example, central
power enterprises conscientiously implement national price policy, overcome the difficulties
of the long-term low electricity price, build reasonable electricity price formation mechanism
and the sustainable development ability, accelerate electric power construction, and optimize
the allocation of national energy resources. According to the international energy agency
statistics, from 2002 to 2007, average electricity price of 56 countries increased 76%, industrial
electricity price increased 84% on average. Over the same period in China, the price only
increased 32%. From 2005 to 2009, central grain companies implemented accumulated policy
acquisition of more than 259 million tons of grain and oil, which increased the average annual
income of the grain farmers by ten billion yuan directly. In the world's international food crisis
from 2006 to 2008, the central enterprises enforced national minimum price to purchase, sell,
21
auction and other controlling policy to maintain the stability of grain market, making China a
"safety island" in the global food crisis. The petroleum and petrochemical enterprises actively
support the national macroeconomic regulation and control to ensure the stability of the
domestic oil supply and maintain China's fuel prices relatively stable. The refining plate of
three central petroleum and petrochemical enterprises suffered a loss of 165.2 billion yuan due
to the policy factors, of which the state provided financial subsidies about 63.2 billion yuan
and companies used their own capital subsidy of more than 100 billion yuan. To fulfil the social
responsibility, the SOEs controlled by the SASAC may suffered financial loss and low
investment and operating efficiency.
SASAC also actively absorbs employment, protecting the legitimate rights and interests of
employees. The central enterprises positively response to the appeal “the key of ensuring
people's well-being and maintaining stability is to protect the employment” from the state
council. The companies take active measures absorbing as much as possible employment to
ease the employment pressure. In 2009 central enterprises took the initiative to hire more two
hundred thousand graduates, increased by 7% of 2008. Central enterprises shall, in accordance
with the requirements of "cutting salary but no layoff, suspending but no unemployment”,
stabilize employment, comply with the new labour law, sign labour contract with employees,
cover five basics, namely insurance pension, unemployment, medical treatment, industrial
injury and birth. I develop the first hypothesis based on the objectives of central enterprises.
H1a The SASACs as controllers have negative impact on the firms’ performance excepting the
employment.
22
Besides the SASACs, there are numbers of governmental organs under the state council. The
researcher from the state council development research centre, Wenkui Zhang, has explained
the characteristics of SASAC after its establishment. (Wan and Wei, 2003) The SASAC is a
unique institution under the state council and different from the existed governmental organ.
Chinese government gives it the rights to manage the state-owned assets and flexibility in in
many other aspects such as personnel selection mechanism and compensation system. Previous
asset bureaus were the accountants of state-owned enterprises, but the SASAC is the institution
exercising the investors’ rights on the behalf of state council such as the selection rights of
economic personnel. Even though the SASAC integrates the rights to regulate and supervise
state-owned assets, the enterprises controlled by other governmental agencies such as the
Ministry of Finance and Ministry of Education may have preponderance.
Most enterprises controlled by the Ministry of Education belong to the high-tech industries.
The Chinese government attaches great importance to the innovation of science and technology.
Innovation is an essential part during the reform of SOEs. The Guidance of the Central
Enterprises to fulfil Social Responsibility issued on 4th Jan 2008 stressed that the central
enterprises must promote independent innovation and technological progress. These technical
innovation companies receive political support from the government and have the capacity to
surpass other state-controlled enterprises. The SASAC has the rights to manage the property
rights of SOEs, but the financial power still belongs to the Ministry of Finance. State-owned
enterprises are a part of national finance substantially. The Ministry of Finance would give
interest subsidies to the enterprises in difficulties and provides support for the state-owned
enterprises suffering bankruptcy or laid-off workers. Theoretically, the SASAC manages the
state-owned assets from the angle of investor, but the Ministry of Finance has connection with
the SOEs from the perspective of public finance and business. Without substantial financial
23
rights, the SASAC’s power is obviously restricted. In fact, the budget and final accounts are
determined by the Ministry of Finance. SOEs controlled by the Ministry of Finance can receive
direct financial benefits compared with other enterprises. The study classified all the
governmental agencies excepting the government, asset bureau and SASAC as the
governmental departments. The enterprises controlled by the governmental departments are
supposed to have higher profitability than those controlled by the SASAC.
H1b The governmental departments as controllers have higher profitability than the SASAC.
SASAC has the responsibility of supervising the preservation and increment of the value of the
state-owned assets; guiding and pushing forward the reform and restructuring of state-owned
enterprises; improving corporate governance and propelling the strategic adjustment of the
layout and structure of the state economy. SASAC should legislate laws and regulations on the
management of the state-owned assets, establishes related rules and regulations. SASAC also
has the rights to appoint or dismiss the executives of the supervised enterprises and evaluate
their performances through legal procedures. SASAC can establish corporate executives’
selection system in accordance with the requirements of the socialist market economic system
and improve incentives and restraints system for corporate management. Compared to other
asset management bureaus, the SASAC is more powerful in supervising and managing the
state-owned assets.
H1c The SASACs as controllers have less negative impact on firm performance than other asset
bureaus.
24
Premier Jiabao Wen emphasized that the reform of local state-owned assets management
system must be in accordance with the central unified deployment, from top to bottom, proceed
orderly on the Fifth Session of the Sixteenth Central Committee of the CPC (Communist Party
of China). (SASAC Website) Higher-level SASAC must guide and supervise the lower-level
SASAC in accordance with the law. Strengthening the guides and supervision of local state-
owned assets is the effective measure to guarantee the implementation of the regulations and
policies. However, the policies and regulations are not sufficiently carried out in some areas.
Some sponsor duties need to be further standardized of some local SASACs. The guide and
supervision systems are divided into two levels. First one is the guide and supervision between
the central SASAC and local SASACs at all levels. The central SASAC implements unified
guidance and supervision to the local state-owned assets according to laws, administrative
regulations and authorisation by the state council. The main method to supervise is to develop
and execute assets supervision regulations. The regulations have general norms guiding effects
on local SASACs at all levels. The second one is the guide and supervision between high-level
and low-level local SASACs. The provincial SASAC has the responsibility to guide and
supervise the management of state-owned assets at municipal or lower levels.
The social responsibility leads to the loss of SOEs. For example, central enterprises enforced
national minimum price to purchase, sell, auction and other controlling policy to maintain the
stability of the grain market in the global food crisis. Moreover, the government regulates the
dispose of SOEs’ profits. The SOEs need to hand over 100%/10%/5%/None of their profits to
the government according to different industries. Some of the SOEs have very low profitability
or even suffer loss. Excepting the operating expense, some enterprises barely have capital for
investment and research which could further lead to low profitability. The SOEs should have
low profitability. The financial support also decreases with the administrative level. High-level
25
enterprises can receive more financial relief. SOEs at different levels are supposed to have
different performances.
H2 High-level state controllers have fewer negative effects on firm performance and more
positive effects on employment than the low-level state controllers.
26
3. Data and Methodology 3.1 Sample and Variables The ownership data is obtained from CSMAR database which is available from 2003 to 2016.
The initial sample includes yearly data of up to 2,955 firms. The data set provides essential
information, such as the name of ultimate controllers and hierarchy, to develop a new
ownership scheme. I adjust the data set by deleting the enterprises whose ownership data is
missing, the enterprises those have two or more controllers and the enterprises whose
controller’s nature cannot be identified. The final sample includes 957,987 firm years of the
period from 2003 to 2016.
3.1.1 Ownership Structure Classification
The paper adopts the ultimate controller instead of the share types to classify the listed firms
and develop the new ownership mechanism. The ultimate controller is separated based on
administrative level, functions and objectives. First, all the controllers of SOEs are divided into
three levels: central, provincial and municipal. It is worth mentioning that there are four
municipals directly under the central government, namely Beijing, Shanghai, Tianjin, and
Chongqing. The municipals directly under the central government are at the provincial level.
The controllers of Beijing, Shanghai, Tianjin and Chongqing SOEs are categorized into the
provincial level. Second, the SASAC is the ad hoc department under state council and
distinguished with other governmental departments. Normal asset management departments
are also separated from SASAC as they may not have the same rights with SASAC. For the
non-SOEs, individual controllers may not have the sufficient managerial experience as
enterprise-controllers when operating a firm. They are separated as private, private enterprise,
foreign and foreign enterprise.
27
The ownership classification in the study comprise four major categories: State, Foreign,
Private and Other. The State includes 14 sub-categories: Public Institution, Provincial
Government, Municipal Government, Central Department, Central Asset Bureau, Central
SASAC, Central State-owned Enterprise, Provincial Department, Provincial Asset Bureau,
Provincial SASAC, Local State-owned Enterprise, Municipal Department, Municipal Asset
Bureau, Municipal SASAC. The Foreign includes 2 sub-categories: Foreign Individual and
Foreign Enterprise. The Private includes 2 sub-categories: Private Individual and Private
Enterprise. The Other includes 3 sub-categories: Operating Unit, Collectively-owned
Enterprise and Social Organization. The classification is shown in Table 3.1 and detailed
explanation is presented in Appendix A.
Insert Table 3.1
3.1.2 Distribution of Firm Types
The distribution of firm types over all the sample years is presented in Table 3.2. I identify the
types of listed firms based on the ultimate controllers. The firms controlled by one of the State
controllers are identified as state-owned enterprises, the firms controlled by one of the Foreign
controllers are identified as foreign enterprises, the firms controlled by one of the Private
controllers are identified as private enterprises, the firms controlled by of the Other controllers
are identified as other enterprises, and the firms without controllers are treated as widely held
firms.
Insert Table 3.2
The distribution shows that the SOEs accounted for 74.32% of all listed firms in 2003. The
proportion of SOEs drops gradually year by year with the figure 56.38% in 2009 and 37.89%
28
in 2015. Meanwhile, the portion of private enterprises increases from 13.08% in 2003 to 55.19%
in 2015. The number of private enterprises exceeds SOEs in 2011. It implies the effects of a
series of reforms by Chinese government, especially the Split Share Reform in 2005. From
2005 to 2010, the percentage of private enterprises almost doubled and that of SOEs declined
by about one forth. Figure 3.1 displays the trends of SOEs, private and foreign enterprises. The
proportion of foreign enterprises is stable in the past decade. The number of firms without
ultimate controllers was increasing over one decade which implies the ownership of listed firms
in China is becoming dispersed.
Figure 3.1 Trend of Different Types of Listed Firms
Figure 3.2 shows the distribution of 21 detailed controllers’ ownerships types from 2003 to
2016. The local state-owned enterprises were the most common controllers of SOEs in 2003.
However, they were gradually replaced by SASAC from 2004. This is due to the establishment
of SASAC in 2003. Central SASAC, provincial and municipal SASAC constantly supersede
other state controllers.
0
10
20
30
40
50
60
70
80
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Trend of Different Types of Firms
State Private Foreign Other Widely Held
29
Figure 3.2 Distribution of Controllers’ Ownership
3.1.3 Ownership Variables I use dummy variable to measure the ownership structure of listed firms. Controller is the
dummy variable to indicate the ultimate controller of the firm. The firms without controllers
are used as the baseline. Demsetz and Villalonga's (2001) point out a study that uses the
management to account for the complexity of interests represented by a given ownership
structure would present a more accurate description of the ownership– performance relation.
This paper uses the fraction of shares held by board of directors, board of supervisors,
0
10
20
30
40
50
60
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Distribution of Actual Controllers' Ownership Type
Central Asset Bureau Central Department Central SASAC
Central State-owned Enterprise Collectively-owned Enterprise Foreign Enterprise
Foreign Individual Local State-owned Enterprise Municipal Asset Bureau
Municipal Department Municipal Government Municipal SASAC
Operating Unit Private Enterprise Private Individual
Provincial Asset Bureau Provincial Department Provincial Government
Provincial SASAC Public Institution Social Organization
Widely Held
30
executives and management, namely Director, Supervisor, Executive, Management as control
variables to provide an exact relation between ownership and performance.
3.1.4 Performance Measures
The Paper adopts various proxies to measure the firm performance, including the profitability
(ROA, ROE, Tobin Q, Net Profit Margin and EBIT), employment (the number of employees),
investment, labour productivity (Operating Revenue per Employee and Operating Profit per
Employee), Investment (Capital Expenditure), Investment Efficiency (Return on Capital
Employed and ROI), Operating Efficiency (ROS and Expense Ratio) and Firm Output
(Operating Revenue and Operating Profit). The explanation of performance measures is shown
in the Appendix B.
3.1.5 Control Variables
The study controls firm level characteristics, industry and time including managerial ownership,
split share reform, firm size, leverage, firm age and financial crisis from 2007 to 2010. The
explanation of control variable is presented in Appendix C.
3.2 Methodology The empirical model used in the study is based on fixed effects regression analysis, as the
Ordinary Least Squares (OLS) would ignore individually specific effects and Hausman Test
shows that fixed effect is more suitable for the data set. Following Anderson and Reeb (2003),
Gugler et al. (2014), I employ dummy variables for each year and dummy variables for each
31
stock code as fixed effects. The regression equation is described as follows (detailed models
are presented in Appendix D):
!"#$%#&'()"*,, = ./ + .12%(3#%44"#*,, + .567#& − 4"9"4;'37'<4"=*,, + >1?3%)@2%A"*,, + >BC"'#*,, + D*,,
Where !"#$%#&'()"*,, are the measures for firm performances of firm i in year t, namely profitability,
employment, labour productivity, investment, investment efficiency, operating efficiency and
firm output;
2%(3#%44"#*,,is the dummy variable indicating the type of ultimate controller of firm i in year t;
67#& − 4"9"4;'37'<4"=*,, are the variables controls firm-level effects of firm i in year t, namely
Director, Supervisor, Executive, Management, SSR, Size, Leverage, Firm Age and Crisis;
?3%)@2%A"*,, is the fixed effects variable identifying the unique code of firm i in year t;
C"'#*,, is the fixed effects variable identifying year of firm i in year t.
32
4. Empirical Findings The section provides the empirical results of the study. Section 4.1 presents the univariate
analysis of the different performance measures. Section 4.2 describes the regression results of
the effect of controllers on firm performances.
4.1 Univariate Analysis
Table 4.1~4.4 show the mean value of various performance measures for the listed firm with
different controllers. The average value of performances varies with the types of controllers.
The foreign individual and private individual are the controllers with higher average Tobin Q
than state controllers. The central SASAC has larger average number of employees than other
controllers. As one of the governmental agencies, the SASACs bear the responsibility to
stabilize society and hire more employees. The number of employees of SASAC decreases
with its administrative level. Specifically, the central, provincial and municipal SASAC has
the average employee value of 3.50, 3.43 and 3.37 respectively. The SASACs, especially the
central SASAC, show higher labour productivity in operating revenue per employee than other
controllers. Similar with the employment, the SASACs are capable to invest more than other
controllers. There is no surprise that firms with the controller of central SASAC has the largest
average output. Acting as the supervisor and manager of SOEs, the SASAC has sufficient
resources and financial support from the government. The paper estimates the significance of
differences in firm performance by using the ANOVA and Tukey-Kramer test. To save space,
only the vital results and the significances at 5% are reported are presented in Table 4.5.
Insert Table 4.1~4.5
33
4.2 Effects of Controllers on Firm Performance
The section applies seven equations to estimate the effect of listed firms’ ultimate controllers
on different types of firm performance, namely profitability, employment, labour productivity,
investment, investment efficiency, operating efficiency and firm output (Detailed estimated
models are described in Appendix. D). The results are presented in Table 4.6~4.9.
The paper employs Equation (1) to estimate the relation between firms’ ultimate controllers
and firm profitability. The coefficients of independent variables with different profitability
measures are presented in Table 4.6.
Insert Table 4.6
In Table 4.6, column 1 shows the results for ROA. The Central SASAC, Municipal Asset
Bureau, and Municipal SASAC are negatively related to ROA. The Private, Foreign Individual
and Social Organization have positive effects. Column 2 shows the results for ROE. The
Provincial Department, Private and Foreign Individual, and Social Organization have positive
coefficients. Column 3 shows the results for Tobin Q. Among all the controllers, the Central,
Provincial and Municipal SASACs, Municipal Asset Bureau and Government have a negative
effect on the Tobin Q. The results are significant at 10% level. Column 4 shows the results for
Net Profit Margin. The Provincial Department, Foreign Individual, Private Individual,
Collectively-owned Enterprises and Social Organization are positively related to Net Profit
Margin, while the Municipal Asset Bureau has a negative impact. Column 5 shows the results
for EBIT. Only the state controllers have significant influence on EBIT. The Public Institution,
Local State Enterprise, Provincial SASAC, Municipal Asset Bureau and Municipal SASAC
are negatively related to EBIT.
34
The results about the effect of controllers on firm profitability show that most governmental
controllers have negative effect on firm profitability, such as Public Institution, Central SASAC,
Local State-owned Enterprise, Provincial SASAC, Municipal Asset Bureau, Municipal
Government and Municipal SASAC. However, certain governmental controllers are positively
related to firm profitability, such as Provincial Department. The finding is inconsistent with
previous studies. (Wei et al., 2003; Sun and Tong, 2005) Previous studies report a negative
relationship between state ownership and firm performance. The studies did not separate
different governmental agencies and treat the state share as one type of ownership. Different
forms and levels of state ownership can lead to different firm performances. The positive
relationship between Provincial Department and Profitability implies the significance to
categorize different governmental agencies and examine their effects on firm performance
separately.
The Foreign Individual and Private Individual both have positive relationship with firm
profitability. Wei et al. (2003) discuss that foreign investors can monitor and positively impact
the firm. The presence of foreign ownership drives management to perform consistently with
firm value maximization. Foreign ownership could provide access to international capital
resources, advanced technology, and superior managerial expertise. Preservation of the access
is profitable to shareholders and firms. Firms with the controller of a private individual are
actively monitored by the individual. In fact, the private controllers usually appoint themselves
or representatives as the chairman of the firms. These controllers or representatives have the
managerial and industrial knowledge to operate a company and effectively monitor the
management. Moreover, as the private controller could receive more dividends from the
efficient daily operation, the agency conflicts between ownership and management could be
35
mitigated when a private individual is the controller. Given the discussion, the foreign and
private controllers are expected to have positive effect on firm performance.
The coefficients of Municipal SASAC and Municipal Asset Bureau related to ROA are -0.0155
and -0.0187, respectively. The coefficients related to Tobin Q are -0.658 and -0.760, which
means when Municipal SASAC and Municipal Asset Bureau control the listed firms, the Tobin
Q of listed firm would decrease by 0.658 and 0.760. The Municipal SASAC has less negative
effect on ROA and Tobin Q than Municipal Asset Bureau. The SASAC performs investor's
responsibilities, supervises and operates the state-owned assets, enhances the management of
the state-owned assets, and has the responsibility of supervising the preservation and increment
of the value of the state-owned assets. SASAC should legislate laws and regulations on the
management of the state-owned assets, establishes related rules and regulations. SASAC also
has the rights to appoint or dismiss the executives of the supervised enterprises and evaluate
their performances through legal procedures. In sum, SASAC is acting on behalf of the state
council and takes charge of the daily management of the supervisory panels. With the
responsibilities, SASAC is expected to manage and monitor the listed firm more efficiently
than other state controllers. Besides, compared with Municipal SASAC, the Central SASAC is
less negatively associated with ROA. The Chairman of the Board of State Development and
Investment Corporation, Wang Huisheng, points out that the title of the central enterprise itself
is the largest social responsibilities in the conference of 22nd June 2017. (Wang and Du, 2017)
The controllers at central level should obey and serve the national strategy, develop in
conformity with legal provisions, act as the representative and pioneers of the times. In turn,
the central enterprises could receive more benefits and supports from the central government,
and then perform better than the enterprise on lower administrative level. The finding implies
that privatization is not the only implement benefiting the profitability of listed firm,
36
transformation of control rights to central asset bureau or provincial department from other
state controllers can also improve the firms’ profitability.
The paper employs Equation (2) and (3) to estimate the effects of firms’ controllers on
employment and labour productivity respectively. The coefficients of independent variables
with different employment and labour productivity measures are presented in Table 4.7.
Insert Table 4.7
In Table 4.7, column 1 shows the results for employment. Among all the controllers, the Central
SASAC, Central Department, Central and Local State-owned Enterprises, Provincial
Department, all Municipal State Controllers, and Foreign Enterprise have positive impact on
employment, and the Private Enterprise and Social Organization has negative effects. The
coefficients of the Central SASAC is significantly positive at 1% level and larger than that of
other State Controllers. The central enterprises have the political responsibility, social
responsibility, economic responsibility and the responsibility of the enterprise development. A
central enterprise may fail in its obligations without the responsibilities. The third plenary
session of the 18th CPC Central Committee indicated that central enterprises should
standardize employment system and eliminate the systematic obstacles and employment
discrimination of area, industry, identity, gender and other factors affecting equal employment.
In practice, central enterprises participants energetically in the recent Belt and Road Initiative.
(Li and Du, 2017) The Belt and Road is a development strategy proposed by Chinese
Government that focuses on connectivity and cooperation between Eurasian countries. There
are 47 central enterprises investing in or cooperating with other countries' firms. These central
enterprises are constructing 1676 projects focusing on infrastructure construction, energy
construction, capacity corporation parks and performing social responsibility, such as
ecological environmental protection, employment problems and public welfare establishments.
37
For example, the PetroChina promotes employment by providing more than thirty thousand
jobs in Kazakhstan; sponsor education by funding the international students; improves people's
livelihood by building and reconstructing 72 schools, 30 hospitals, power facilities, water
supply facilities, roads, and bridges. Employment is a primary objective of State-owned
Enterprises, especially the central enterprise. The Central SASAC as the controller has greater
responsibility on employment than the other state controllers.
In Table 4.7, column 2 shows the results for operating revenue per employee. Public Institution,
Central Department, Local State Enterprise, Provincial Department, all Municipal State
Controllers, Foreign Enterprise and Operating Unit are negatively associated with the operating
revenue per employee. Column 3 presents the results for operating profit per employee. Only
the Central Asset Bureau has a positive effect on operating profit per employee. Other State
Controllers, such as Central SASAC, Local State Enterprise, Provincial Department, Provincial
Government, Provincial SASAC, and all municipal governmental agencies are negatively
related to operating profit per employee. The relationship between controllers and labour
productivity differs with the measures. Most controllers have negative effects on the labour
productivity except the Central Asset Bureau. The asset bureau is either the precursor, the sub-
level entity of SASAC or a sole asset management department focusing on culture, education
etc. As a distinguished asset management entity, the asset bureau could perform individually
from SASAC. The coefficients of SASAC related to operating profit per employee decrease
with the administrative level. Higher-level state controllers have tighter connections with the
government. The financial support and social responsibility urge the controllers operate the
firms more efficiently. Compared with other state controllers at the same level, SASAC also
performs better in the labour productivity. Appointing Central Asset Bureau and other central
state controllers could benefit the labour productivity of SOEs.
38
I employ Equation (4) and (5) to estimate the effects of firms’ controllers on investment and
investment efficiency respectively. The coefficients of independent variables with different
investment and investment efficiency measures are presented in Table 4.8.
Insert Table 4.8
In Table 5.8, column 1 shows the results for capital expenditure which is proxied for firm
investment. Most state controllers are significantly positively related to capital expenditure.
Foreign Controllers, Private Individual and Operating Unit also have positive impacts. The
positive relationship between foreign individual and investment implies that foreign controllers
could get access to international capital and benefit the firm and shareholders. (Wei et al., 2003)
The state controllers also help improve investment than widely held firms. They can raise the
funds through their unique financing platform – the local state asset management companies.
In Table 4.8, column 2 shows the results for return on capital employed. Most state controllers
have negative influences on return on capital employed. The Private Individual can increase
return on capital employed than widely held companies. Column 3 shows the results for ROI.
Unlike the effect on return on capital employed, no state controllers have positive effects on
ROI. Only collectively-owned enterprise is positively related to ROI.
I employ Equation (6) and (7) to estimate the effects of firms’ controllers on operating
efficiency and firm output respectively. The coefficients of independent variables with
different operating efficiency and output measures are presented in Table 4.9.
Insert Table 4.9
39
In Table 4.9, column 1 shows the results for ROS. The Provincial Department, Foreign and
Private Individual are positively related to ROS. Column 2 shows the results for the ratio of
selling and financial expenses to operating revenue (Ratio of Expense to Revenue in the Table
4.8). The Municipal Department and Foreign Individual have significantly negative impacts on
the ratio. The negative relationship between Foreign Individual and the expense ratio implies
that when the foreign individual controls the listed firm, the firm is operated and managed more
efficiently. The situation is contrary when Public Institution and Central Department control
the firms. The Foreign Individual has positive effects on the operating efficiency. This finding
indicates that foreign controllers can monitor and positively affect the operation and
management of the firm. Wei et al. (2003) discuss that the presence of foreign ownership could
force the managers to align their interests with firm value maximization. The effects of state
controllers are inconsistent over the ROS and expense ratio. The finding show that privatization
may not benefit the operating efficiency of listed firm, as the coefficients of Private Individual
are less than those of Provincial Department. The government should consider the influences
on firms’ operating efficiency when privatizing the SOEs in reforms.
In Table 4.9, column 3 presents the results for operating revenue. The central SASAC and
Municipal SASAC are negatively related to the operating revenue. Column 4 presents the
results for operating profit. The Public Institution and Municipal Asset Bureau have negative
influence. The results show that some state controllers can help improve firm output and private
controllers may decrease firm output.
To sum up, different types of controllers has distinct impacts on firm performance. Table 4.10
reports the effects of controllers on firm performances over different measures. The findings
are summarized as follows.
40
Insert Table 4.10
First, the effects of state controllers are inconsistent. Previous studies report a negative
relationship between the state ownership and firm performance. (Wei et al., 2003; Sun and
Tong, 2005) However, the results in the study show that the state controllers have positive
impacts on employment and investment. The finding is consistent with the argument that the
state-controlled enterprises have the political responsibility, social responsibility, and
economic responsibility. Employment is a primary objective of state-controlled enterprises,
especially the central enterprise. And the state controllers have close relationship with the
authority and easily access to the sources.
Second, different types of state controllers have distinguishing effects on firm performances.
The results present that most state controllers are negatively related to firm profitability, labour
productivity, investment efficiency, and firm output. Nevertheless, provincial department has
positive effects on profitability and operating efficiency. It is significant to distinguish different
types of state controllers when estimating their effects on firm performance.
Third, the state controllers at higher administrative level perform better than those at lower
level. The results in the study show that the central state controllers are superior to the
provincial and municipal controllers in profitability, employment, labour productivity and
investment efficiently. The controllers at central level should obey and serve the national
strategy, develop in conformity with legal provisions. They could receive more supports from
the central government and perform better than the enterprise on lower administrative level.
Fourth, the SASAC perform better than other state controllers. The SASAC is a commission
of China and directly under the state council. It performs investor's responsibilities, supervises
41
and operates the state-owned assets, and enhances the management of the state-owned assets.
The results in the study show that the SASAC has fewer negative impacts than other
governmental agencies at the same administrative level.
Fifth, the effects of Foreign Controller are inconsistent. The results in the study present that the
foreign individual has positive influences on profitability, investment and operating efficiency.
The foreign enterprise is positively related to employment and negatively related to labour
productivity.
At last, different types of private controllers have distinguishing effects on firm performances.
The private individual has positively effects on profitability and operating efficiency, and the
private enterprise is negatively related to firm output. It implies that private ownership of listed
firms in China is not significantly superior to state ownership.
4.3 Effects of Controllers on Firm Performances within Four Major Groups
To further estimate the effect of different types of controllers, the paper groups the controllers
in different categories. The section first estimates the effects of four major controllers on firm
performances, namely State, Foreign, Private and Other. The result is shown in table 4.11.
Insert Table 4.11
The results show that the state controllers are negatively related to firm profitability, labour
productivity, investment efficiency and firm outputs. The findings are consistent with previous
researches (Sun and Tong, 2003; Wei et al., 2005). The foreign controllers are positively related
to investment and the private controllers have positive impacts on profitability and operating
efficiency.
42
Then I estimate the effects of 21 types of controllers on firm performance by groups. The results
are presented in Table 4.12.
Insert Table 4.12
The results show that most state controllers have negative impacts on firm performances
excepting the employment. The state-owned enterprises do less harm to the firm profitability
than other state controllers. Central SASAC perform best in employment. SOEs and SASAC
have fewer negative impacts on labour productivity.
Tables 4.13 show the effects of private individual and private enterprise on firm performance.
Insert Table 4.13
The results show that the private individual is positively related to most performance measure
and negatively related to firm employment. The private enterprises only have negative impacts
on employment and firm output.
Tables 4.14 show the effects of foreign individual and foreign enterprise on firm performance.
Insert Table 4.14
The foreign individual is positively related to profitability, investment and operating efficiency.
The foreign enterprise has positive impacts on employment and negative effect on labour
productivity and investment efficiency.
As the SASAC, State-owned Enterprise, Private Individual and Foreign Individual have
significant impacts on different firm performance, I estimate the effects of them across groups.
The results are presented in Table 4.15.
Insert Table 4.15
43
The results show that the SASACs are positive related to employment. The positive effects
decrease with the administrative levels. The private and foreign individual have positive
impacts on most firm performance, the private and foreign individual have negative effects on
employment.
4.4 Effects of State Controllers on Firm Performances at Different Administrative Levels
This section estimates the effects of state controllers on firm performances at different
administrative levels in three aspects. First, I categorize all state controllers into central and
local levels. Then, I exclude the state-owned enterprises and categorize the other state
controllers into central, provincial and municipal levels. Because of limited information about
state-owned enterprises, the SOEs controllers in the study only have two levels: central and
local. At last, I estimate the effects of central and local SOEs.
Table 4.16 show the effects of state controller at central and local levels.
Insert Table 4.16
The results show that the state controllers at local level do less harm to the firm profitability
and operating efficiency. This could be attributed to that local governments have long gaming
relationships with local SOEs and are the most sensitive agencies to policies demand of the
microcosmic systems. They can also represent of microcosmic bodies to negotiate effectively
with the higher-level governments and strive for proper reforming spaces and resources. The
central state controllers perform better in employment that the local ones.
Table 4.17 show the effects of state controller without SOEs at central, municipal and
provincial levels.
Insert Table 4.17
44
The results show that without the SOEs, the central state controllers do less harm to the firm
profitability than the municipal controllers and perform better in employment than the
municipal controllers. These state controllers comprise governmental agencies, such as
government, SASAC, asset bureau, and department. The finding implies the listed firm
controlled by central governmental agencies have better performance than those controlled by
low-level agencies.
Table 4.18 show the effects of central and local state-owned enterprise on firm performance.
Insert Table 4.18
The central SOEs only have impacts on Tobin’s Q and perform better than the local SOEs. The
local SOEs are negatively related to labour productivity, investment and firm output and
positively related to Tobin’s Q and ROI.
4.5 Effects of State Controllers on Firm Performances at within Groups
This part groups state controllers into 6 categories, namely government, department, asset
bureau, SASAC, SOEs and Public Institution. Then I estimate the effects of every group on
firm performance.
Table 4.19 show the effects of every state group on firm performance.
Insert Table 4.19
From the table 4.19, we can see the SOEs as controllers have least negative influences on firm
profitability, operating efficiency and firm output. The asset bureau performs worst among all
the state controllers in profitability, investment efficiency and operating efficiency. The
government and SASAC are superior to other state controllers in employment. The government
45
and departments have fewer negative coefficients in investment efficiency. Moreover, the
SASAC is positively related to firm output.
4.6 Endogeneity
The SASAC was established in 2003 and the number of SOEs controlled by the SASAC has been
steadily increasing since then. As estimated in the previous part, the SASAC as the controller has less
adverse impact on the performance of listed firms. There is reason to believe that the controlling rights
by the SASAC is affected by the firms’ performance to some extent. The Chinese government always
attaches importance to the pillar firms and may select the firms with outstanding performances and
transfer the controlling rights to SASAC. A potential concern with the regressions is that controlling
rights may not be exogenous and some firm performances could result in fixed effects model’s
coefficients to be biased. The endogeneity lays on the existence of selection bias of the Chinese
government.
To test whether the selection bias and reverse causality problem exist, I adopt the Heckman two-step
selection model from Heckman (1979) and Maury (2006). I model the control of state as the endogenous
variable. Following the Maury (2006), I include the performance measures in the first stage Probit
model. The Probit model also includes all control variables. Then I regress the performance
measures on the SASAC dummy with all control variables and lambda from the first stage.
The results are presented in the following table. The first-stage regression shows that most state
controllers are negatively related to firm performance (control variables are not presented to
conserve space). The results are shown in Table 4.20 to 4.24. The government, asset bureau
and SASAC are more likely to control the listed firms with low performances. The second-
stage regression shows that the lambdas are statistically significant, indicating that single-
equation estimates are biased. The corrected results present that most state controllers
negatively affect the firms' performances.
Inset Table 4.20~4.24
46
5. Conclusion The study aims at investigating the effect of ownership structure on the listed firm performance
in China. Previous studies (Wei et al., 2003; Sun and Tong, 2005; Chen et al, 2008; Firth et al.,
2010) use share types as the proxies for the ownership structure which may obfuscate the actual
effects of ownership. Using the share types as the indicators of ownerships fails to separate the
state-owned legal person shares and private-owned legal person shares. To estimate the
accurate effects of different types of ownership, the study investigates the nature of the top
shareholders rather than the types of shares they hold and classifies the shareholders into four
major categories: state, foreign, private, other, and 21 sub-categories. The classification scheme
is developed by distinguishing the shareholders’ objectives. The sample in the study includes
957,987 firm years from 2003 to 2016. The firm performance measures involve: profitability,
employment, labour productivity, investment, investment efficiency, operating efficiency and
firm output. The study employs firm and year fixed effect to estimate the relationship between
controllers and firm performance.
The results in the study shows most state controllers, such as SASACs, Local State-owned
Enterprise, and Public Institution, have negative effects on profitability and labour productivity.
Compared with the widely held companies, the firms controlled by SASACs, Local State-
owned Enterprise, and Public Institution have lower profitability and labour productivity. The
Central SASAC, Municipal Government and Municipal SASAC are positively related with
employment. The Public Institution and Provincial Asset Bureau have negative impacts on
operating efficiency, but the Provincial and Municipal Department have the positive influence.
The state controllers at central level are superior to the provincial and municipal controllers in
profitability, employment, labour productivity and investment efficiently. Moreover, SASACs
perform better than other state controllers. SASAC has fewer negative impacts than other
47
governmental agencies at the same administrative level in profitability, labour productivity and
investment efficiency. The foreign individual has positive influences on profitability,
investment and operating efficiency. The foreign enterprise has positive effects on employment
and negative impacts on labour productivity. The effects of private controllers are also
inconsistent. The private individual has positive effects on profitability and operating
efficiency, and the private enterprise is negatively related to firm output.
The findings imply that it is necessary to separate different types of ownerships when
estimating their effects on firm performances. When implementing reforming strategies, the
policy-makers should be aware that the privatization only benefits the former SOEs in certain
aspects, such as profitability and investment, but decreases the operating efficiency of listed
firms controlled by Provincial Department. Even though most state controllers may harm the
performances of firm, several types of state controllers are beneficial to employment and
operating efficiency, such as Central SASAC, Municipal Department, Municipal SASAC,
Central Asset Bureau and Provincial Department. Moreover, providing sufficient financial and
political supports for local and small SOEs could be an efficient method to improve their
performances.
48
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55
Tables
Table 2.1 summarizes the literature about ownership structure about Chinese market including purposes, findings
and the methods used to identify ownership structure.
Authors Objectives Findings Ownership Structure
Sun and Tong (2003) Wei et al. (2005) Firth et al. (2010) Liao et al. (2014) Chen et al. (2008) Cull et al. (2015)
Performance changes of SoEs regarding the share issuing privatisation from1994 to 1998 Relation between ownership structure and firm value Roles played by state and mutual funds shareholders in the split share reform Firm performance after split share reform Performance changes when ownership transferring in the controlling shareholder from 1996 to 2000 Role of firms' government connections in determining the severity of financial constraints faced by Chinese firms
SoEs' performance is improved by the privatisation. State ownership is negatively related to firm performance State shares are significantly negatively related to firm performances State ownership is positively related to the final compensation ratio. State shareholders have greater incentives to promote the reform than institutional shareholders. SoEs experience a quicker boost in output, profit, and employment than the non-SoEs. Firms performance is improved when the control is transferred to a private entity. There are little changes in the firm performance when the control is passed to another government agency. Government connections are related to financial constraints and large non-state firms with weak government connections are especially financially constrained
Share types Share types Share types Ultimate controller in the financial reports Share types Questionnaire
Table 2.1 Literature about Chinese State Ownership
56
Table 3.1 shows the classification of ownership in the study and the definitions.
State
The State category includes all the types of state controller.
The enterprises owned by state controller are State-Owned
Enterprises.
Public Institution
Public Institution refers to the social service organization
established by the government operate education, science
and technology, culture, health, media and other activities.
Public Institution is the legal person entity as the form of
organization or institution. For example, China Agricultural
University and Television Station are classified into this
category.
Provincial Government
Provincial Government is the government at provincial
level. It also includes municipal government directly under
central government. For example, government of Zhejiang
Province is classified into this category.
Municipal Government
Municipal Government is the government at municipal
level. For example, government of Hangzhou is classified
into this category.
Central Department
Central Department is the governmental department
affiliated to central government, such as ministry, bureaus,
commission, office et al. For example, Ministry of Finance
is classified into this category.
57
Provincial Department
Provincial Department is the governmental department
affiliated to provincial government, such as ministry,
bureaus, commission, office et al. For example, Ministry of
Finance of Zhejiang Province is classified into this category.
Municipal Department
Municipal Department is the governmental department
affiliated to municipal government, such as ministry,
bureaus, commission, office et al. For example, Ministry of
Finance of Hangzhou is classified into this category.
Central Asset Bureaus
Central Asset Bureaus is the asset management and
operation department affiliated to central government, such
as asset bureaus, department, office et al., excepting
SASAC. For example, Orient Asset Management Bureaus
is classified into this category.
Provincial Asset Bureaus
Provincial Asset Bureaus is the asset management and
operation department affiliated to provincial government,
such as asset bureaus, department, office et al., excepting
SASAC. For example, Beijing Economic-Technological
Development Area State-owned Assets Management Office
is classified into this category.
Municipal Asset Bureaus
Municipal Asset Bureaus is the asset management and
operation department affiliated to municipal government,
58
such as asset bureaus, department, office et al., excepting
SASAC. For example, Anshan State-owned Assets
Administration Bureau is classified into this category.
Central SASAC
Central SASAC is the State-owned Assets Supervision and
Administration Commission.
Provincial SASAC
Provincial SASAC is the State-owned Assets Supervision
and Administration Commission affiliated to provincial
government. For example, Anhui State-owned Assets
Supervision and Administration Commission is classified
into this category.
Municipal SASAC
Municipal SASAC is the State-owned Assets Supervision
and Administration Commission affiliated to municipal
government. For example, Baotou Municipal People's
Government State-owned Assets Supervision and
Administration Commission is classified into this category.
Central State-owned Enterprise
Central State-owned Enterprise refers to the controller is the
SOE affiliated to central government (SOEs here are legal
persons). For example, Air China Limited is classified into
this category.
Local State-owned Enterprise
Local State-owned Enterprise refers to the controller is the
SOE affiliated to local (provincial/municipal) government
(SOEs here are legal persons). For example, Anhui Conch
Group Co., Ltd. is classified into this category.
59
Foreign
The Foreign category includes foreign individual and
foreign enterprise. The enterprises owned by foreign
controller are Foreign Enterprises.
Foreign Individual
Foreign Individual refers to the individuals who are not the
citizens of China, including the individuals from Hong
Kong, Macao and Taiwan
Foreign Enterprise
Foreign Enterprise is a common investment vehicle for
mainland China-based business wherein foreign parties can
incorporate a foreign-owned limited liability company. For
example, American Airlines, Inc. is classified into this
category.
Private
The Private category includes private individual and private
enterprise. The enterprises owned by private controller are
Private Enterprises.
Private Individual
Private Individual refers to the individuals who domestic
citizens of China, excluding the individuals from Hong
Kong, Macao and Taiwan
Private Enterprise
Private Enterprise refers to the business or company that is
managed by independent companies or private individuals
rather than being controlled by the state. For example,
Beijing Haidian Technology Development Co., Ltd. is
classified into this category.
Other
The Other category includes Operating Unit, Collectively-
owned Enterprise and Social Organization
Operating Unit
Operating Unit is one type of economic organization with
their own name, address, fixed operation place, institutional
framework, financial system, and employees. Enterprise
60
Operating Unit cannot have legal person status, control and
dispose of the property or bear civil liability independently.
For example, Aluminum Corporation of China is classified
into this category.
Collectively-owned Enterprise
Collectively-owned Enterprise refers to the independent
commodity-economy organization based on public
ownership of the means of production which benefit all its
members. For example, All China Federation of Supply and
Marketing Cooperatives is classified into this category.
Social Organization
Social organization is a pattern of relationships between and
among individuals and social groups. For example
Employee Joint Stock Fund of Yuxian Nanlou Group,
Yangquan is classified into this category.
Table 3.1 Ownership Classification
61
Table 3.2 presents the distribution of firm types from 2003 to 2016. I identify the types of listed firms based on
the ultimate controllers. The firms controlled by state controllers are identified as state-owned enterprises, the
firms controlled by foreign controllers are identified as foreign enterprises, the firms controlled by private
controllers are identified as private enterprises, the firms controlled by other controllers are identified as other
enterprises, and the firms without controllers are treated as widely held firms. The proportion of each firm type is
presented every year with the number of every type of firms below. The total number of listed firms of every year
is also shown in the table.
Table 3.2 Distribution of Firm Type
Table 3.3 shows the results of Hausman Test for the effect of controllers on firm performance. The value of Prob >
chi2 of all performance measure are less than 0.05, which means fixed effect should be adopted.
Table 3.3 Results of Hausman Test for the Effect of Controllers on Firm Performance
Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
State 74.32 69.66 68.76 65.06 61.56 60.56 56.38 48.78 44.02 42.1 40.76 40.7 37.89 35.26932 939 929 931 953 969 985 1019 1020 1026 1017 1020 1018 1042
Private 13.08 24.26 25.61 29.49 32.62 33.88 38.24 45.67 50.93 51.95 52.67 52.19 55.19 57.43164 327 346 422 505 542 668 954 1180 1266 1314 1308 1483 1697
Foreign 9.57 3.19 2.89 2.94 3.42 3.38 3.26 3.59 3.41 3.57 3.57 3.59 3.28 3.15120 43 39 42 53 54 57 75 79 87 89 90 88 93
Other 2.63 2.45 2.66 2.45 2 1.69 1.43 1.24 1.12 1.4 1.32 1.4 1.12 1.3233 33 36 35 31 27 25 26 26 34 33 35 30 39
Wildely held 0.4 0.45 0.07 0.07 0.39 0.5 0.69 0.72 0.52 0.98 1.68 2.11 2.53 2.845 6 1 1 6 8 12 15 12 24 42 53 68 84
Total Firm 1,254 1348 1351 1431 1548 1,600 1747 2089 2317 2437 2,462 2562 2687 2955
Performance Variables
ROA ROE TobinQNet Profit
MarginEBIT Employees
Operating Revenue per
Employee
Operating Profit per Emploee
Capital Expenditure
Return on Capital
EmployedROI ROS
Ratio of ExpenseTo
Revenue
Operating Revenue
Operating Profit
Prob>chi2 0 0 0 0 0 0 0 0 0 0 0.043 0 0 0 0
62
Table 4.1 reports the summary statistics of the firm profitability with all controllers’ ownership types. Panel A
presents the profitability of state controllers; Panel B presents the profitability of foreign controllers; Panel C
presents the profitability of private controllers; Panel D presents the profitability of other controllers; Panel E
presents the profitability of widely held firms.
Table 4.1 Summary Statistics of Firm Profitability Measures with Different Controllers Types
Controller Types Max. Obs. ROA ROE TobinQ Net Profit Margin EBIT
Panel A: State
Public Institution 387 0.0426 0.0696 4.6689 0.0685 7.9578
Central Asset Bureau 3 0.0467 0.1146 4.5828 0.0688 7.8683
Central Department 358 0.0279 0.0554 4.4143 0.0355 8.25
Central SASAC 2,908 0.0306 0.0636 4.1944 0.0435 8.4152
Central State-owned Enterprise 891 0.0335 0.0756 3.8978 0.0497 8.1709
Local State-owned Enterprise 957 0.0287 0.0452 3.5529 0.0417 8.0362
Provincial Asset Bureau 74 0.0278 0.0529 3.6958 0.0235 8.1893
Provincial Department 317 0.0299 0.0602 3.932 0.0973 8.1605
Provincial Government 334 0.0365 0.0708 3.4328 0.088 8.4234
Provincial SASAC 3829 0.0314 0.0647 3.9672 0.0545 8.4153
Municipal Asset Bureau 344 0.0188 0.0334 3.6431 0.0177 8.0424
Municipal Department 397 0.028 0.0564 4.4233 0.0564 7.9845
Municipal Government 430 0.0283 0.0565 3.6706 0.0495 8.0624
Municipal SASAC 2474 0.0294 0.0611 3.796 0.0521 8.2493
Panel B: Foreign
Foreign Enterprise 407 0.0286 0.0663 4.0099 0.0293 8.1847
Foreign Individual 630 0.0479 0.0773 5.3222 0.0903 8.0472
Panel C: Private
Private Enterprise 140 0.0368 0.0568 4.2776 0.0615 8.2149
Private Individual 12278 0.04969 0.0796 5.1928 0.083 8.0498
Panel D: Other
Operating Unit 39 0.035 0.0662 5.5979 0.0724 8.0911
Collectively-owned Enterprise 164 0.0539 0.0862 3.8141 0.0745 8.2007
Social Organization 239 0.0323 0.053 3.1401 0.0592 8.2013
Panel E: No Controller
Widely Held Firms 331 0.0366 0.0774 4.5381 0.0752 8.3516
Table 4.2 reports the summary statistics of the firm employment and labour productivity with all controllers’
ownership types. Panel A presents the firm employment and labour productivity of state controllers; Panel B
presents the firm employment and labour productivity of foreign controllers; Panel C presents the firm
employment and labour productivity of private controllers; Panel D presents the firm employment and labour
productivity of other controllers; Panel E presents the firm employment and labour productivity of widely held
firms.
Table 4.2 Summary Statistics of Firm Employment and Labour Productivity with Different Controllers Types
Controller Types Max. Obs. Employees Operating Revenue per Employee Operating Profit per Employee
Panel A: StatePublic Institution 387 3.1092 5.8089 4.6755Central Asset Bureau 3 2.6725 6.1448 5.0492Central Department 358 3.3427 5.811 4.8071Central SASAC 2,908 3.5011 6.1 4.7715Central State-owned Enterprise 891 3.3334 5.8737 4.7983Local State-owned Enterprise 957 3.2102 5.8018 4.6568Provincial Asset Bureau 74 2.8927 6.1233 4.9989Provincial Department 317 3.1341 5.7992 4.9Provincial Government 334 3.2868 5.9683 4.8871Provincial SASAC 3829 3.4309 6.0039 4.8024Municipal Asset Bureau 344 3.2742 5.6982 4.5211Municipal Department 397 3.1775 5.7919 4.6056Municipal Government 430 3.3101 5.7743 4.5581Municipal SASAC 2474 3.3719 5.8728 4.7004
Panel B: ForeignForeign Enterprise 407 3.2779 5.7739 4.824Foreign Individual 630 3.1049 5.9238 4.8536
Panel C: PrivatePrivate Enterprise 140 3.159 5.8965 4.8093Private Individual 12278 3.0946 5.8558 4.8176
Panel D: OtherOperating Unit 39 3.1288 5.9084 4.8759Collectively-owned Enterprise 164 3.3807 5.8093 4.739Social Organization 239 3.3262 5.6907 4.5695
Panel E: No ControllerWidely Held Firms 331 3.3712 5.9621 5.1512
Table 4.3 reports the summary statistics of the firm investment and investment efficiency with all controllers’
ownership types. Panel A presents the firm investment and investment efficiency of state controllers; Panel B
presents the firm investment and investment efficiency of foreign controllers; Panel C presents the firm investment
and investment efficiency of private controllers; Panel D presents the firm investment and investment efficiency
of other controllers; Panel E presents the firm investment and investment efficiency of widely held firms.
Table 4.3 Summary Statistics of Firm Investment and Investment Efficiency with Different Controllers Types
Controller Types Max. Obs. Capital Expenditure Return on Capital Employed ROI
Panel A: StatePublic Institution 387 7.772 0.0622 0.231Central Asset Bureau 3 7.8879 0.1093 0.4933Central Department 358 7.9458 0.0439 0.3048Central SASAC 2,908 8.1737 0.0611 0.2588Central State-owned Enterprise 891 7.9829 0.0593 0.1562Local State-owned Enterprise 957 7.7583 0.0517 0.2261Provincial Asset Bureau 74 7.7191 0.0343 0.2646Provincial Department 317 7.9159 0.0601 0.158Provincial Government 334 8.0773 0.0638 0.1388Provincial SASAC 3829 8.1127 0.0647 0.1915Municipal Asset Bureau 344 7.8276 0.0482 0.1248Municipal Department 397 7.8595 0.0596 0.1417Municipal Government 430 7.9495 0.0596 0.2055Municipal SASAC 2474 7.9745 0.0632 0.2687
Panel B: ForeignForeign Enterprise 407 7.8689 0.059 0.4066Foreign Individual 630 7.7585 0.0695 0.618
Panel C: PrivatePrivate Enterprise 140 7.6958 0.0581 0.2627Private Individual 12278 7.7685 0.0733 0.3653
Panel D: OtherOperating Unit 39 7.867 0.0613 0.4402Collectively-owned Enterprise 164 7.9128 0.0696 0.4013Social Organization 239 7.8957 0.0574 0.1986
Panel E: No ControllerWidely Held Firms 331 8.726 0.0512 0.283
Table 4.4 reports the summary statistics of the operating efficiency and firm output with all controllers’ ownership
types. Panel A presents the operating efficiency and firm output of state controllers; Panel B presents the operating
efficiency and firm output of foreign controllers; Panel C presents the operating efficiency and firm output of
private controllers; Panel D presents the operating efficiency and firm output of other controllers; Panel E presents
the operating efficiency and firm output of widely held firms.
Table 4.4 Summary Statistics of Operating Efficiency and Firm Output with Different Controllers Types
Controller Types Max. Obs. ROS Ratio of Expenses Operating Revenue Operating Profit
Panel A: StatePublic Institution 387 0.07 0.1057 8.9157 7.8307Central Asset Bureau 3 0.0557 0.0926 8.8174 7.9Central Department 358 0.0332 0.0979 9.1218 8.1129Central SASAC 2,908 0.0414 0.0649 9.4817 8.2996Central State-owned Enterprise 891 0.048 0.0674 9.1635 8.0577Local State-owned Enterprise 957 0.0427 0.0844 9.0014 7.8985Provincial Asset Bureau 74 0.0241 0.0787 9.0719 8.0979Provincial Department 317 0.1038 0.1011 8.8918 8.03Provincial Government 334 0.0753 0.0804 9.3065 8.2692Provincial SASAC 3829 0.0535 0.0781 9.4388 8.276Municipal Asset Bureau 344 0.0264 0.0924 8.9724 7.8475Municipal Department 397 0.0637 0.091 8.9107 7.8209Municipal Government 430 0.0616 0.0958 9.0804 7.8821Municipal SASAC 2474 0.0481 0.0849 9.2438 8.0969
Panel B: ForeignForeign Enterprise 407 -0.0016 0.115 9.0353 8.0632Foreign Individual 630 0.0928 0.088 8.9889 7.9489
Panel C: PrivatePrivate Enterprise 140 0.0339 0.1013 9.0701 8.0272Private Individual 12278 0.0772 0.097 8.9544 7.9372
Panel D: OtherOperating Unit 39 0.0659 0.0976 9.05 7.9827Collectively-owned Enterprise 164 0.0847 0.0852 9.1381 8.1502Social Organization 239 0.052 0.0817 9.1163 8.0648
Panel E: No ControllerWidely Held Firms 331 0.05 0.116 9.1717 8.4326
66
Table 4.5 presents the significant differences of mean value of various performance measure. Panel A reports the
differences of average Tobin Q between individual and other controllers. Panel B reports the difference of average
operating revenue per employee between SASACs and other controllers. Panel C reports the differences of
average capital expenditure between SASACs and other controllers. Panel D reports the differences of average
operating profit between SASACs and other controllers. Only the differences are significant at level 5% are
reported in the table. The symbol ‘+’ means the average value of the former firm in different firm measures
surpluses the later firm and the differences are significant at level 5%
Table 4.5 Significant Differences of Average Values of Firm Performances
Panel A: Tobin Q Differentces
Private Individual vs Provincial Department +Private Individual vs Provincial Government +Private Individual vs Provincial SASAC +Private Individual vs Social Organization +Private Individual vs Provincial Department +Private Individual vs Provincial Government +Private Individual vs Provincial SASAC +Private Individual vs Social Organization +Foreign Individual vs Local State-owned Enterprise +Foreign Individual vs Municipal Asset Bureau +Foreign Individual vs Municipal Government +Foreign Individual vs Municipal SASAC +Foreign Individual vs Provincial Department +Foreign Individual vs Provincial Government +Foreign Individual vs Provincial SASAC +Foreign Individual vs Social Organization +
Panel B: Operating Revenue per Employee
Central SASAC vs Central State-owned Enterprise +Central SASAC vs Collectively-owned Enterprise +Central SASAC vs Foreign Enterprise +Central SASAC vs Foreign Individual +Central SASAC vs Local State-owned Enterprise +Central SASAC vs Municipal Asset Bureau +Central SASAC vs Municipal Department +Central SASAC vs Municipal Government +Central SASAC vs Municipal SASAC +Central SASAC vs Private Individual +Central SASAC vs Provincial Department +Central SASAC vs Public Institution +Central SASAC vs Social Organization +Provincial SASAC vs Public Institution +Provincial SASAC vs Social Organization +Municipal SASAC vs Provincial Asset Bureau +Municipal SASAC vs Provincial Government +Municipal SASAC vs Provincial SASAC +Municipal SASAC vs Social Organization +
Panel C: Capital Expenditure
Central SASAC vs Central State-owned Enterprise +Central SASAC vs Collectively-owned Enterprise +Central SASAC vs Foreign Enterprise +Central SASAC vs Foreign Individual +Central SASAC vs Local State-owned Enterprise +Central SASAC vs Municipal Asset Bureau +Central SASAC vs Municipal Department +Central SASAC vs Municipal Government +Central SASAC vs Municipal SASAC +Central SASAC vs Private Enterprise +Central SASAC vs Private Individual +Central SASAC vs Provincial Asset Bureau +Central SASAC vs Provincial Department +Central SASAC vs Public Institution +Central SASAC vs Social Organization +Provincial SASAC vs Public Institution +Provincial SASAC vs Social Organization +Municipal SASAC vs Private Enterprise +Municipal SASAC vs Private Individual +Municipal SASAC vs Provincial SASAC +Municipal SASAC vs Public Institution +
Panel D: Operating Profit
Central SASAC vs Central State-owned Enterprise +Central SASAC vs Foreign Enterprise +Central SASAC vs Foreign Individual +Central SASAC vs Local State-owned Enterprise +Central SASAC vs Municipal Asset Bureau +Central SASAC vs Municipal Department +Central SASAC vs Municipal Government +Central SASAC vs Municipal SASAC +Central SASAC vs Private Enterprise +Central SASAC vs Private Individual +Central SASAC vs Provincial Department +Central SASAC vs Public Institution +Central SASAC vs Social Organization +Provincial SASAC vs Public Institution +Provincial SASAC vs Social Organization +Municipal SASAC vs Private Individual +Municipal SASAC vs Provincial Government +Municipal SASAC vs Provincial SASAC +Municipal SASAC vs Public Institution +
Table 4.6 presents the regression results of equation (1) to examine the effect of ultimate controllers on firm
profitability. The table includes 5 proxies for firm profitability, namely ROA, ROE, Tobin Q, Net Profit Margin
and EBIT. The controllers are presented by 21 dummy variables. Panel A presents the state controllers; Panel B
presents the foreign controllers; Panel C presents the private controllers; Panel D presents the other controllers.
The control variables comprise managerial ownership, split share reform, firm size, firm age, leverage and
financial crisis. The sample is yearly from 2003 to 2016.
*Significance at 10% level. **Significance at 5% level. ***Significance at 1% level.
Table 4.6 Regression Results of the Effect of Controllers on Firm Profitability
ProfitabilityEq. (1)
Controller ROA ROE TobinQ Net Profit Margin EBIT
Panel A: State
PublicInstitution -0.127***CentralAssetBureauCentralDepartmentCentralSASAC -0.0103** -0.878**CentralStateEnterpriseLocalStateEnterprise -0.0876***ProvincialAssetBureauProvincialDepartment 0.0111* 0.0447*** 0.0628***ProvincialGovernmentProvincialSASAC -0.760* -0.0909***MunicipalAssetBureau -0.0187*** -0.887* -0.0373** -0.108***MunicipalDepartmentMunicipalGovernment -1.008**MunicipalSASAC -0.0155*** -0.658* -0.0626**
Panel B: ForeignForeignEnterpriseForeignIndividual 0.0276*** 0.0648*** 0.0866***
Panel C: PrivatePrivateEnterprise -1.013*PrivateIndividual 0.0101** 0.0371*** 0.0512***
Panel D: OtherCollectiveEnterprise 0.0496*OperatingUnitSocialOrganization 0.0241*** 0.0591*** 0.113***
ShareholdingRateofDirectorShareholdingRateofSupervisorsShareholdingRateofExecutives YesShareholdingRateofManagementSplitShareReformSizeLeverageFirmAgeCrisis
Constant -0.0605*** -0.329*** 5.595*** -0.521*** 0.142*Observations 23,428 23,415 23,393 23,225 21,234Number of StockCode 2,892 2,899 2,903 2,847 2,856R-squared 0.051 0.03 0.084 0.027 0.473
Table 4.7 presents the regression results of equation (2) and (3) to examine the effect of ultimate controllers on
firm employment and labour productivity. The table includes 1 proxy for firm employment, namely the number
of employees; 2 proxies for labour productivity, namely operating revenue per employee and operating profit per
employee. The controllers are presented by 21 dummy variables. Panel A presents the state controllers; Panel B
presents the foreign controllers; Panel C presents the private controllers; Panel D presents the other controllers.
The control variables comprise managerial ownership, split share reform, firm size, firm age, leverage and
financial crisis. The sample is yearly from 2003 to 2016.
*Significance at 10% level. **Significance at 5% level. ***Significance at 1% level.
Table 4.7 Regression Results of the Effect of Controllers on Employment and Labour Productivity
Employment Labor ProductivityEq. (2) Eq. (3)
Controller Employment Operating Revenue per Employee
Operating Profit per Emploee
Panel A: State
PublicInstitution -0.0656** -0.133**CentralAssetBureau 0.570*CentralDepartment 0.0910*** -0.0902***CentralSASAC 0.0998*** -0.104**CentralStateEnterprise 0.0716***LocalStateEnterprise 0.0643*** -0.0764*** -0.115**ProvincialAssetBureauProvincialDepartment 0.0512* -0.0850*** -0.139**ProvincialGovernment -0.139**ProvincialSASAC -0.109**MunicipalAssetBureau 0.0936*** -0.0982*** -0.193***MunicipalDepartment 0.0497* -0.0507* -0.155***MunicipalGovernment 0.103*** -0.140*** -0.185***MunicipalSASAC 0.0969*** -0.0552** -0.123**
Panel B: ForeignForeignEnterprise 0.0795*** -0.0766***ForeignIndividual 0.0533* 0.111*
Panel C: PrivatePrivateEnterprise -0.0824**PrivateIndividual
Panel D: OtherCollectiveEnterpriseOperatingUnit -0.160***SocialOrganization -0.162***
ShareholdingRateofDirectorShareholdingRateofSupervisorsShareholdingRateofExecutives YesShareholdingRateofManagementSplitShareReformSizeLeverageFirmAgeCrisis
Constant -2.111*** 3.627*** 2.039***Observations 23,381 23,159 19,687Number of StockCode 2,883 2,854 2,877R-squared 0.368 0.209 0.059
Table 5.8 presents the regression results of equation (4) and (5) to examine the effect of ultimate controllers on
firm investment and investment efficiency. The table includes 1 proxy for firm investment, namely capital
expenditure; 2 proxies for investment efficiency, namely return on capital employed and ROI. The controllers are
presented by 21 dummy variables. Panel A presents the state controllers; Panel B presents the foreign controllers;
Panel C presents the private controllers; Panel D presents the other controllers. The control variables comprise
managerial ownership, split share reform, firm size, firm age, leverage and financial crisis. The sample is yearly
from 2003 to 2016.
*Significance at 10% level. **Significance at 5% level. ***Significance at 1% level.
Table 4.8 Regression Results of the Effect of Controllers on Investment and Investment Efficiency
Investment Invesmtnent EfficiencyEq. (4) Eq. (5)
Controller Capital ExpeditureReturn on Capital
EmployedROI
Panel A: State
PublicInstitution -0.0312***CentralAssetBureauCentralDepartment 0.121** -0.0251**CentralSASAC -0.0167*CentralStateEnterprise -0.0213**LocalStateEnterprise -0.0198**ProvincialAssetBureau 0.190** -0.0272*ProvincialDepartment 0.206***ProvincialGovernment 0.169***ProvincialSASAC 0.142***MunicipalAssetBureau -0.0301***MunicipalDepartmentMunicipalGovernment 0.122**MunicipalSASAC -0.0187**
Panel B: ForeignForeignEnterprise 0.207*** -0.0185*ForeignIndividual 0.424*** 0.0207*
Panel C: PrivatePrivateEnterprisePrivateIndividual 0.144*** 0.0134*
Panel D: OtherCollectiveEnterprise -0.445*OperatingUnit 0.293***SocialOrganization
ShareholdingRateofDirectorShareholdingRateofSupervisorsShareholdingRateofExecutives YesShareholdingRateofManagementSplitShareReformSizeLeverageFirmAgeCrisis
Constant -1.926*** -0.0769*** 1.289***Observations 23,377 23,063 19,180Number of StockCode 2,883 2,887 2,597R-squared 0.287 0.026 0.01
Table 4.9 presents the regression results of equation (6) and (7) to examine the effect of ultimate controllers on
firm operating efficiency and firm output. The table includes 2 proxies for firm operating efficiency, namely ROS
and the ratio of selling and financial expenses to operating revenue (ratio of expense to revenue); 2 proxies for
firm output, namely operating revenue and operating profit. The controllers are presented by 21 dummy variables.
Panel A presents the state controllers; Panel B presents the foreign controllers; Panel C presents the private
controllers; Panel D presents the other controllers. The control variables comprise managerial ownership, split
share reform, firm size, firm age, leverage and financial crisis. The sample is yearly from 2003 to 2016.
*Significance at 10% level. **Significance at 5% level. ***Significance at 1% level.
Table 4.9 Regression Results of the Effect of Controllers on Operating Efficiency and Output
Operating Efficiency Firm OutputEq. (6) Eq. (7)
Controller ROS Expense Ratio Operating Revenue Operating Profit
Panel A: State
PublicInstitution 0.0234*** -0.0817*** -0.103*
CentralAssetBureau
CentralDepartment 0.0137*
CentralSASAC 0.0622***
CentralStateEnterprise
LocalStateEnterprise
ProvincialAssetBureau -0.0536*
ProvincialDepartment 0.0707***
ProvincialGovernment
ProvincialSASAC 0.0398**
MunicipalAssetBureau -0.114**
MunicipalDepartment -0.0134**
MunicipalGovernment -0.0548**
MunicipalSASAC
Panel B: ForeignForeignEnterprise
ForeignIndividual 0.0949*** -0.0241***
Panel C: PrivatePrivateEnterprise 0.0477* -0.0854***
PrivateIndividual 0.0598***
Panel D: Other
CollectiveEnterprise 0.0532*
OperatingUnit
SocialOrganization 0.0750*** 0.0139* -0.0913***
ShareholdingRateofDirector
ShareholdingRateofSupervisors
ShareholdingRateofExecutives Yes
ShareholdingRateofManagement
SplitShareReform
Size
Leverage
FirmAge
Crisis
Constant -0.931*** 0.217*** 1.068*** -0.633***
Observations 23,212 23,220 23,201 19,778
Number of StockCode 2,852 2,848 2,845 2,856
R-squared 0.041 0.035 0.709 0.326
Table 4.10 summarizes the relationship between controllers and firm performance. Panel A presents the state controllers; Panel B presents the foreign controllers; Panel C
presents the private controllers; Panel presents the other controllers. Symbol “+” indicates a positive relation between controllers and performance; Symbol “-” indicates a
negative relation between controllers and performance; Symbol “Un” indicates the relation is not unified through all the performance measures; Blank indicates there is no
relation between controllers and firm performances.
Table 4.10 Relationship between Controllers and Firm Performance
Controller Profitability Employment Labor Productivity Investment Investment Efficiency Operating Efficiency Firm Output
Panel A: State
PublicInstitution - - - - -CentralAssetBureau +CentralDepartment + - + - -CentralSASAC - + - - +CentralStateEnterprise + -LocalStateEnterprise - + - -ProvincialAssetBureau + - -ProvincialDepartment + + - + +ProvincialGovernment - +ProvincialSASAC - - + +MunicipalAssetBureau - + - - -MunicipalDepartment + - +MunicipalGovernment - + - + -MunicipalSASAC - + - -
Panel B: ForeignForeignEnterprise + - + -ForeignIndividual + + + - +
Panel C: PrivatePrivateEnterprise - - + -PrivateIndividual + + + +
Panel D: OtherCollectiveEnterprise - +OperatingUnit - +SocialOrganization + - Un -
Table 4.11 presents the regression results about the effect of four major ultimate controllers on firm performance. The control variables comprise managerial ownership, split
share reform, firm size, firm age, leverage and financial crisis. The sample is yearly from 2003 to 2016.
*Significance at 10% level. **Significance at 5% level. ***Significance at 1% level.
Table 4.11 Regression Results of the Effect of Four Major Controllers on Firm Performance
Profitability Employment Labor Productivity Investment Invesmtnent Efficiency Operating Efficiency Firm OutputEq. (1) Eq. (2) Eq. (3) Eq. (4) Eq. (5) Eq. (6) Eq. (7)
Controller ROA ROE TobinQ Net Profit Margin EBIT EmploymentOperating
Revenue per Employee
Operating Profit per Emploee
Capital Expediture Return on Capital Employed ROI ROS Expense Ratio Operating Revenue Operating Profit
State -0.00771* -0.613* -0.0650** 0.0695*** -0.0469** -0.112** 0.0864** -0.0155*Foreign 0.00970** 0.0359*** 0.0484*** 0.144*** 0.0134* 0.0573***Private 0.0309** 0.0366** 0.0486** 0.273*** 0.0438**Other 0.0160*** 0.0493*** 0.0742*** -0.0759*** 0.118** 0.0615*** -0.0551**
ShareholdingRateofDirectorShareholdingRateofSupervisorsShareholdingRateofExecutivesShareholdingRateofManagement YesSplitShareReformSizeLeverageFirmAgeCrisis
Constant -0.0561*** -0.325*** 5.765*** -0.508*** 0.142* -2.124*** 3.643*** 2.070*** -1.929*** -0.0759*** 1.311*** -0.921*** 0.215*** 1.049*** -0.617***Observations 23,428 23,415 23,393 23,225 21,234 23,381 23,159 19,687 23,377 23,063 19,180 23,212 23,220 23,201 19,778Number of StockCode 2,892 2,899 2,903 2,847 2,856 2,883 2,854 2,877 2,883 2,887 2,597 2,852 2,848 2,845 2,856R-squared 0.047 0.027 0.083 0.024 0.472 0.365 0.205 0.058 0.285 0.024 0.008 0.038 0.03 0.707 0.325
Table 4.12 presents the regression results about the effect of different state controllers on firm performance. The control variables comprise managerial ownership, split share
reform, firm size, firm age, leverage and financial crisis. The sample is yearly from 2003 to 2016.
*Significance at 10% level. **Significance at 5% level. ***Significance at 1% level.
Table 4.12 Regression Results of the Effect of State Controllers on Firm Performance
Profitability Employment Labor Productivity Investment Invesmtnent Efficiency Operating Efficiency Firm OutputEq. (1) Eq. (2) Eq. (3) Eq. (4) Eq. (5) Eq. (6) Eq. (7)
Controller ROA ROE TobinQ Net Profit Margin EBIT Employment Operating Revenue per Employee
Operating Profit per Emploee
Capital Expediture Return on Capital Employed ROI ROS Expense Ratio Operating Revenue Operating Profit
CentralAssetBureau 0.531*CentralDepartment -0.0100** -0.0311** -0.0454*** 0.0931*** -0.0743*** -0.0946* -0.0351*** -0.0630*** 0.0126**CentralSASAC -0.0199*** -0.0398*** -0.844*** -0.0624*** -0.0449** 0.105*** -0.146*** -0.0872*** -0.0267*** -0.0746*** 0.0620*** -0.0566**CentralStateEnterprise -0.0167*** -0.0366*** -0.0559*** -0.0493** 0.0743*** -0.115*** -0.0756*** -0.0305*** -0.0688*** 0.0235**LocalStateEnterprise -0.0139*** -0.0356*** -0.0221*** -0.103*** 0.0635*** -0.0581*** -0.151*** -0.0842*** -0.0283*** -0.0284*** -0.0165* -0.0863***ProvincialAssetBureau -0.0357* -0.0869*** -0.0370*** -0.110***ProvincialDepartment -0.0798** 0.0511** -0.0662*** -0.178*** -0.0118** -0.0974**ProvincialGovernment -0.0144*** -0.722* -0.0344** -0.0742** 0.0423** -0.174*** -0.0149* -0.0426*** -0.0107** -0.0776*ProvincialSASAC -0.0107*** -0.0157** -0.737*** -0.0264*** -0.106*** 0.0320*** -0.148*** -0.0173*** -0.177*** -0.0372*** 0.0380*** -0.105***MunicipalAssetBureau -0.0277*** -0.0559*** -0.849*** -0.0844*** -0.124*** 0.0950*** -0.0805*** -0.231*** -0.117*** -0.0390*** -0.220** -0.0721*** -0.148***MunicipalDepartment -0.0115*** -0.0712*** 0.0489*** -0.0326* -0.194*** -0.0698* -0.0152** -0.0283** -0.0148*** -0.0849**MunicipalGovernment -0.0192*** -0.0345*** -0.985*** -0.0378*** -0.0693** 0.104*** -0.123*** -0.226*** -0.0233*** -0.0361** -0.0586*** -0.112***MunicipalSASAC -0.0246*** -0.0451*** -0.637*** -0.0571*** -0.0779*** 0.0966*** -0.0377*** -0.162*** -0.107*** -0.0279*** -0.155** -0.0601*** 0.00490* 0.0217** -0.0880***PublicInstitution -0.0191*** -0.0361*** -0.0534*** -0.142*** -0.0492** -0.172*** -0.0404*** -0.0716*** 0.0224*** -0.0842*** -0.137***
ShareholdingRateofDirectorShareholdingRateofSupervisorsShareholdingRateofExecutivesShareholdingRateofManagement YesSplitShareReformSizeLeverageFirmAgeCrisis
Constant -0.0477*** -0.288*** 5.509*** -0.464*** 0.160** -2.124*** 3.630*** 2.121*** -1.756*** -0.0634*** 1.349*** -0.868*** 0.215*** 1.069*** -0.578***Observations 23,428 23,415 23,393 23,225 21,234 23,381 23,159 19,687 23,377 23,063 19,180 23,212 23,220 23,201 19,778Number of StockCode 2,892 2,899 2,903 2,847 2,856 2,883 2,854 2,877 2,883 2,887 2,597 2,852 2,848 2,845 2,856R-squared 0.049 0.029 0.084 0.026 0.473 0.366 0.207 0.058 0.285 0.025 0.01 0.039 0.033 0.709 0.325
Table 4.13 presents the regression results about the effect of different private controllers on firm performance. The control variables comprise managerial ownership, split share
reform, firm size, firm age, leverage and financial crisis. The sample is yearly from 2003 to 2016.
*Significance at 10% level. **Significance at 5% level. ***Significance at 1% level.
Table 4.13 Regression Results of the Effect of Private Controllers on Firm Performance
Profitability Employment Labor Productivity Investment Invesmtnent Efficiency Operating Efficiency Firm OutputEq. (1) Eq. (2) Eq. (3) Eq. (4) Eq. (5) Eq. (6) Eq. (7)
Controller ROA ROE TobinQ Net Profit Margin EBIT Employment Operating Revenue per Employee
Operating Profit per Emploee
Capital Expediture Return on Capital Employed ROI ROS Expense Ratio Operating Revenue Operating Profit
PrivateEnterprise 0.0105* -0.132*** 0.155*** -0.0900***PrivateIndividual 0.0120*** 0.0254*** 0.394*** 0.0344*** 0.0563*** -0.0488*** 0.0264*** 0.140*** 0.0268* 0.0240*** 0.0877* 0.0432*** 0.0752***
ShareholdingRateofDirectorShareholdingRateofSupervisorsShareholdingRateofExecutivesShareholdingRateofManagementSplitShareReform YesSizeLeverageFirmAgeCrisis
Constant -0.0586*** -0.312*** 5.356*** -0.494*** 0.106 -2.071*** 3.605*** 1.995*** -1.794*** -0.0867*** 1.295*** -0.906*** 0.214*** 1.062*** -0.635***Observations 23,428 23,415 23,393 23,225 21,234 23,381 23,159 19,687 23,377 23,063 19,180 23,212 23,220 23,201 19,778Number of StockCode 2,892 2,899 2,903 2,847 2,856 2,883 2,854 2,877 2,883 2,887 2,597 2,852 2,848 2,845 2,856R-squared 0.045 0.026 0.082 0.022 0.472 0.363 0.204 0.057 0.284 0.023 0.008 0.036 0.03 0.707 0.324
Table 4.14 presents the regression results about the effect of different foreign controllers on firm performance. The control variables comprise managerial ownership, split share
reform, firm size, firm age, leverage and financial crisis. The sample is yearly from 2003 to 2016.
*Significance at 10% level. **Significance at 5% level. ***Significance at 1% level.
Table 4.14 Regression Results of the Effect of Foreign Controllers on Firm Performance
Profitability Employment Labor Productivity Investment Invesmtnent Efficiency Operating Efficiency Firm OutputEq. (1) Eq. (2) Eq. (3) Eq. (4) Eq. (5) Eq. (6) Eq. (7)
Controller ROA ROE TobinQ Net Profit Margin EBIT EmploymentOperating Revenue
per Employee
Operating
Profit per
Emploee
Capital Expediture Return on Capital Employed ROI ROS Expense Ratio Operating Revenue Operating Profit
ForeignEnterprise 0.0664*** -0.0481*** -0.0801** 0.0903*** -0.0210***
ForeignIndividual 0.0228*** 0.0392*** 0.0528*** -0.0569** 0.0715*** 0.0950* 0.305*** 0.0166* 0.0578*** -0.0253*** 0.0769*
ShareholdingRateofDirector
ShareholdingRateofSupervisors
ShareholdingRateofExecutives
ShareholdingRateofManagement
SplitShareReform Yes
Size
Leverage
FirmAge
Crisis
Constant -0.0549*** -0.302*** 5.554*** -0.480*** 0.135* -2.103*** 3.606*** 2.061*** -1.816*** -0.0736*** 1.339*** -0.887*** 0.219*** 1.063*** -0.605***
Observations 23,428 23,415 23,393 23,225 21,234 23,381 23,159 19,687 23,377 23,063 19,180 23,212 23,220 23,201 19,778
Number of StockCode 2,892 2,899 2,903 2,847 2,856 2,883 2,854 2,877 2,883 2,887 2,597 2,852 2,848 2,845 2,856
R-squared 0.044 0.025 0.082 0.021 0.471 0.362 0.205 0.054 0.285 0.021 0.008 0.034 0.031 0.707 0.324
Table 4.15 presents the regression results about the effect of SASAC, SOEs, Private Individual and Foreign Individual on firm performance. The control variables comprise
managerial ownership, split share reform, firm size, firm age, leverage and financial crisis. The sample is yearly from 2003 to 2016.
*Significance at 10% level. **Significance at 5% level. ***Significance at 1% level.
Table 4.15 Regression Results of the Effect of SASAC, SOEs, Private Individual and Foreign Individual on Firm Performance
Profitability Employment Labor Productivity Investment Invesmtnent Efficiency Operating Efficiency Firm OutputEq. (1) Eq. (2) Eq. (3) Eq. (4) Eq. (5) Eq. (6) Eq. (7)
Controller ROA ROE TobinQ Net Profit Margin EBIT Employment Operating Revenue per Employee
Operating Profit per Emploee
Capital Expediture Return on Capital Employed ROI ROS Expense Ratio Operating Revenue Operating Profit
CentralSASAC -0.00873*** -0.0184*** -0.536** -0.0300*** 0.0607*** 0.0341*** -0.0558** 0.0658 -0.0360*** 0.0813***ProvincialSASAC -0.450** -0.0457*** 0.0429*** -0.103* 0.0546***MunicipalSASAC -0.0109*** -0.0193*** -0.0197*** 0.0442*** -0.0636*** -0.0193** 0.00548** 0.0424***CentralStateEnterprise -0.00567* -0.0148* -0.0226** 0.0270** 0.0279* -0.0455* -0.0289*** 0.0406***LocalStateEnterprise -0.0144** -0.0383** 0.0177* -0.0547** -0.00776*PrivateIndividual 0.0112*** 0.0240*** 0.317** 0.0333*** 0.0527*** -0.0377*** 0.0423*** 0.145*** 0.0321* 0.0242*** 0.0919* 0.0407*** 0.0271*** 0.0800***ForeignIndividual 0.0285*** 0.0521*** 0.0708*** 0.0600* -0.0779*** 0.106*** 0.185*** 0.307*** 0.0318*** 0.0782*** -0.0267*** 0.122**
ShareholdingRateofDirectorShareholdingRateofSupervisorsShareholdingRateofExecutivesShareholdingRateofManagementSplitShareReform YesSizeLeverageFirmAgeCrisis
Constant -0.0608*** -0.315*** 5.223*** -0.502*** 0.105 -2.084*** 3.583*** 1.966*** -1.818*** -0.0887*** 1.239*** -0.912*** 0.219*** 1.048*** -0.660***Observations 23,428 23,415 23,393 23,225 21,234 23,381 23,159 19,687 23,377 23,063 19,180 23,212 23,220 23,201 19,778Number of StockCode 2,892 2,899 2,903 2,847 2,856 2,883 2,854 2,877 2,883 2,887 2,597 2,852 2,848 2,845 2,856R-squared 0.048 0.028 0.083 0.024 0.472 0.364 0.206 0.057 0.286 0.024 0.009 0.038 0.032 0.708 0.325
Table 4.16 presents the regression results about the effect of all state controllers at central and local level on firm performance. The control variables comprise managerial
ownership, split share reform, firm size, firm age, leverage and financial crisis. The sample is yearly from 2003 to 2016.
*Significance at 10% level. **Significance at 5% level. ***Significance at 1% level.
Table 4.16 Regression Results of the Effect of State Controllers at Central and Local Levels on Firm Performance
Profitability Employment Labor Productivity Investment Invesmtnent Efficiency Operating Efficiency Firm OutputEq. (1) Eq. (2) Eq. (3) Eq. (4) Eq. (5) Eq. (6) Eq. (7)
Administrative Level ROA ROE TobinQ Net Profit Margin EBIT EmploymentOperating Revenue
per EmployeeOperating Profit
per EmploeeCapital Expediture Return on Capital Employed ROI ROS Expense Ratio
Operating Revenue
Operating Profit
CentralLevel -0.0149*** -0.0330*** -0.399** -0.0513*** 0.0964*** -0.102*** -0.0680*** -0.0236*** -0.0612*** 0.0504***LocalLevel -0.0143*** -0.0263*** -0.492*** -0.0322*** -0.0765*** 0.0654*** -0.0362*** -0.150*** -0.0492*** -0.0199*** -0.146*** -0.0355*** 0.0129* -0.0788***
ShareholdingRateofDirectorShareholdingRateofSupervisorsShareholdingRateofExecutivesShareholdingRateofManagementSplitShareReform YesSizeLeverageFirmAgeCrisis
Constant -0.0477*** -0.291*** 5.680*** -0.464*** 0.154* -2.124*** 3.629*** 2.122*** -1.771*** -0.0668*** 1.376*** -0.868*** 0.215*** 1.054*** -0.575***Observations 23,428 23,415 23,393 23,225 21,234 23,381 23,159 19,687 23,377 23,063 19,180 23,212 23,220 23,201 19,778Number of StockCode 2,892 2,899 2,903 2,847 2,856 2,883 2,854 2,877 2,883 2,887 2,597 2,852 2,848 2,845 2,856R-squared 0.046 0.026 0.082 0.023 0.472 0.364 0.205 0.056 0.284 0.023 0.009 0.037 0.03 0.707 0.324
Table 4.17 presents the regression results about the effect of state controllers without SOEs at central, provincial and municipal level on firm performance. The control variables
comprise managerial ownership, split share reform, firm size, firm age, leverage and financial crisis. The sample is yearly from 2003 to 2016.
*Significance at 10% level. **Significance at 5% level. ***Significance at 1% level.
Table 4.17 Regression Results of the Effect of State Controllers at Central, Provincial and Municipal Level on Firm Performance
Profitability Employment Labor Productivity Investment Invesmtnent Efficiency Operating Efficiency Firm OutputEq. (1) Eq. (2) Eq. (3) Eq. (4) Eq. (5) Eq. (6) Eq. (7)
Administrative Level ROA ROE TobinQ Net Profit Margin EBIT Employment Operating Revenue per Employee
Operating Profit per Emploee
Capital Expediture Return on Capital Employed ROI ROS Expense Ratio Operating Revenue Operating Profit
CentralLevel -0.00689*** -0.0135*** -0.513*** -0.0262*** 0.0595*** -0.0453** -0.00740** -0.0311*** 0.0460***ProvincialLevel -0.507*** -0.0388*** 0.0226** -0.0584*** 0.0510*** -0.181*** -0.0123* -0.00621*** 0.0351*** -0.0451**MunicipalLevel -0.0148*** -0.0230*** -0.536*** -0.0362*** -0.0334** 0.0599*** -0.0319*** -0.106*** -0.0513*** -0.0123*** -0.176*** -0.0333*** 0.000949 -0.0550***
ShareholdingRateofDirectorShareholdingRateofSupervisorsShareholdingRateofExecutivesShareholdingRateofManagementSplitShareReform YesSizeLeverageFirmAgeCrisis
Constant -0.0513*** -0.295*** 5.550*** -0.473*** 0.140* -2.110*** 3.621*** 2.090*** -1.773*** -0.0707*** 1.355*** -0.879*** 0.214*** 1.068*** -0.587***Observations 23,428 23,415 23,393 23,225 21,234 23,381 23,159 19,687 23,377 23,063 19,180 23,212 23,220 23,201 19,778Number of StockCode 2,892 2,899 2,903 2,847 2,856 2,883 2,854 2,877 2,883 2,887 2,597 2,852 2,848 2,845 2,856R-squared 0.046 0.026 0.083 0.022 0.471 0.364 0.205 0.055 0.284 0.021 0.009 0.036 0.031 0.707 0.324
Table 4.18 presents the regression results about the effect of state-owned enterprise at central and local level on firm performance. The control variables comprise managerial
ownership, split share reform, firm size, firm age, leverage and financial crisis. The sample is yearly from 2003 to 2016.
*Significance at 10% level. **Significance at 5% level. ***Significance at 1% level.
Table 4.18 Regression Results of the Effect of SOEs as Controllers at Central and Local Level on Firm Performance
Profitability Employment Labor Productivity Investment Invesmtnent Efficiency Operating Efficiency Firm OutputEq. (1) Eq. (2) Eq. (3) Eq. (4) Eq. (5) Eq. (6) Eq. (7)
State-owned Enterprise ROA ROE TobinQ Net Profit Margin EBIT EmploymentOperating
Revenue per Employee
Operating Profit per Emploee Capital Expediture Return on Capital Employed ROI ROS Expense Ratio Operating Revenue Operating Profit
CentralStateEnterprise 0.461**LocalStateEnterprise -0.0129** 0.361** 0.0116* -0.0243* -0.0349*** -0.0487*** -0.00927** 0.129** -0.0300***
ShareholdingRateofDirectorShareholdingRateofSupervisorsShareholdingRateofExecutivesShareholdingRateofManagementSplitShareReform YesSizeLeverageFirmAgeCrisis
Constant -0.0512*** -0.293*** 5.460*** -0.472*** 0.142* -2.113*** 3.627*** 2.087*** -1.771*** -0.0687*** 1.329*** -0.877*** 0.215*** 1.067*** -0.589***Observations 23,428 23,415 23,393 23,225 21,234 23,381 23,159 19,687 23,377 23,063 19,180 23,212 23,220 23,201 19,778Number of StockCode 2,892 2,899 2,903 2,847 2,856 2,883 2,854 2,877 2,883 2,887 2,597 2,852 2,848 2,845 2,856
Table 4.19 presents the regression results about the effect of 6 state groups on firm performance. The control variables comprise managerial ownership, split share reform, firm
size, firm age, leverage and financial crisis. The sample is yearly from 2003 to 2016.
*Significance at 10% level. **Significance at 5% level. ***Significance at 1% level.
Table 4.19 Regression Results of the Effect of State Groups on Firm Performance
Profitability Employment Labor Productivity Investment Invesmtnent Efficiency Operating Efficiency Firm OutputEq. (1) Eq. (2) Eq. (3) Eq. (4) Eq. (5) Eq. (6) Eq. (7)
StateGroups ROA ROE TobinQ Net Profit Margin EBIT Employment Operating Revenue
per EmployeeOperating Profit
per EmploeeCapital
ExpeditureReturn on Capital
Employed ROI ROS Expense Ratio
Operating Revenue
Operating Profit
Government -0.0174*** -0.0238* -0.865** -0.0397* -0.0666** 0.0780** -0.0745** -0.200*** -0.0204** -0.0431* -0.0900*Department -0.00790* -0.0581** 0.0673** -0.0574** -0.165*** -0.0181**Assetbureau -0.0225*** -0.0492*** -0.0837*** -0.106*** 0.0692** -0.192*** -0.0377*** -0.0801*** -0.116**SASAC -0.0184*** -0.0338*** -0.752*** -0.0472*** -0.0801*** 0.0766*** -0.155*** -0.0688* -0.0242*** -0.118** -0.0554*** 0.0369** -0.0868***SOE -0.0156*** -0.0369*** -0.0348** -0.0859*** 0.0680*** -0.0461** -0.143*** -0.0856** -0.0292*** -0.0426*** -0.0768**PublicInstitution -0.0190*** -0.0330** -0.0481* -0.153*** -0.193*** -0.0368*** -0.0645** 0.0186* -0.0896*** -0.164***
ShareholdingRateofDirectorShareholdingRateofSupervisorsShareholdingRateofExecutivesShareholdingRateofManagementSplitShareReform YesSizeLeverageFirmAgeCrisis
Constant -0.0479** -0.289*** 5.530** -0.467*** 0.162 -2.119*** 3.636*** 2.124*** -1.765*** -0.064 1.343*** -0.872*** 0.215*** 1.071*** -0.573***Observations 23,428 23,415 23,393 23,225 21,234 23,381 23,159 19,687 23,377 23,063 19,180 23,212 23,220 23,201 19,778Number of StockCode 2,892 2,899 2,903 2,847 2,856 2,883 2,854 2,877 2,883 2,887 2,597 2,852 2,848 2,845 2,856R-squared 0.048 0.027 0.084 0.024 0.473 0.364 0.206 0.057 0.284 0.024 0.009 0.038 0.031 0.708 0.325
Table 4.20 shows the results of the Heckman two-step selection model. The first-stage probit model estimates the
relation between State control rights and Tobin Q. The second-stage model estimates the relation between Tobin
Q and state controllers with corrected self-selection.
*Significance at 10% level. **Significance at 5% level. ***Significance at 1% level.
Table 4.20 Heckman Two-step Selection Model of Tobin Q
Table 4.21 shows the results of the Heckman two-step selection model. The first-stage probit model estimates the
relation between State control rights and Operating Revenue per Employee. The second-stage model estimates
the relation between Operating Revenue per Employee and state controllers with corrected self-selection.
*Significance at 10% level. **Significance at 5% level. ***Significance at 1% level.
Table 4.21 Heckman Two-step Selection Model of Operating Revenue per Employee
Government Department Asset Bureau SASAC SOE Public Institution
First Stage RegressionTobin Q -0.0003*** 0.00003 -0.0003*** -0.0022*** -0.00006 0.00009Firm-Level Variable Include Include Include Include Include Include
Second State RegressionGovernment -0.144*** -0.0724 -0.0793*** -0.927*** -0.883*** -0.0553Department -0.117*** 0.417** -0.0605*** -0.412** -0.262 0.0592AssetBureau -0.142*** 0.0745 -0.0805*** -1.020*** -0.571** 0.0292SASAC -0.115*** -0.0317 -0.0567*** -1.193*** -0.592*** -0.0167SOE -0.0882*** 0.174 -0.0681*** -0.202 -0.510*** 0.0495PublicInstitution -0.0561 -0.303 -0.0702*** -0.841*** -0.584* 0.0825Firm-Level Variable Include Include Include Include Include Includelambda 63.10*** -146.9*** 77.30*** 57.64*** 84.30*** -197.4***Constant -106.3*** 166.5*** -30.74*** -271.6*** -53.64*** 1.494***
Government Department Asset Bureau SASAC SOE Public Institution
First Stage RegressionOperatingRevenuePerEmployee-0.0018** -0.0016*** -0.0048*** 0.0167*** 0.001 -0.001Firm-Level Variable Include Include Include Include Include Include
Second State RegressionGovernment -0.0275*** -0.0306*** -0.00520*** -0.0550*** -0.0435*** -0.0179***Department -0.0257*** -0.0285*** -0.00431*** -0.0407*** -0.0299** -0.0195***AssetBureau -0.0258*** -0.0270*** -0.00574*** -0.0217 -0.0286** -0.0197***SASAC -0.0193*** -0.0216*** -0.00397*** 0.00657 -0.0139* -0.00883**SOE -0.0189*** -0.0205*** -0.00463*** -0.0392*** -0.0106 -0.0172***PublicInstitution -0.00905 -0.012 -0.00244 -0.0259 -0.0264 -0.0225**Firm-Level Variable Include Include Include Include Include Includelambda 10.03*** 6.005*** 4.980*** -1.727*** -5.283*** 15.86***Constant -17.08*** 0.401*** 0.478*** 13.10*** 3.463*** 3.795***
82
Table 4.22 shows the results of the Heckman two-step selection model. The first-stage probit model estimates the
relation between State control rights and ROI. The second-stage model estimates the relation between ROI and
state controllers with corrected self-selection.
*Significance at 10% level. **Significance at 5% level. ***Significance at 1% level.
Table 4.22 Heckman Two-step Selection Model of ROI
Table 4.23 shows the results of the Heckman two-step selection model. The first-stage probit model estimates the
relation between State control rights and ROS. The second-stage model estimates the relation between ROS and
state controllers with corrected self-selection.
*Significance at 10% level. **Significance at 5% level. ***Significance at 1% level.
Table 4.23 Heckman Two-step Selection Model of ROS
Government Department Asset Bureau SASAC SOE Public Institution
First Stage RegressionROI -0.0009* -0.0006** -0.001* -0.001*** -0.0003 -0.0002Firm-Level Variable Include Include Include Include Include Include
Second State RegressionGovernment -0.0639*** -0.0638*** -0.0638*** -0.0640*** -0.0638*** -0.0638***Department -0.0575*** -0.0574*** -0.0574*** -0.0576*** -0.0573*** -0.0574***AssetBureau -0.0214 -0.0213 -0.0213 -0.0216 -0.0214 -0.0214SASAC -0.00727 -0.00721 -0.00722 -0.00751 -0.00741 -0.00725SOE -0.0320*** -0.0318*** -0.0320*** -0.0320*** -0.0316*** -0.0320***PublicInstitution -0.0394 -0.0392 -0.0394 -0.0394 -0.039 -0.0394Firm-Level Variable Include Include Include Include Include Includelambda 0.0334 0.0261 0.0268 0.0196 -0.0778 0.11Constant 3.467*** 3.501*** 3.505*** 3.429*** 3.555*** 3.570***
Government Department Asset Bureau SASAC SOE Public Institution
First Stage RegressionROS 0.0033** 0.0033*** -0.0028 -0.0758*** -0.0001 0.0060***Firm-Level Variable Include Include Include Include Include Include
Second State RegressionGovernment 0.00834*** 0.00740*** -0.00793*** -0.0382*** -0.0450*** 0.000297Department 0.00954*** 0.00851*** -0.00720*** -0.0302*** -0.0276*** 0.0018AssetBureau 0.0060* 0.00485* -0.00997*** -0.0650*** -0.0809*** 0.000495SASAC 0.00578*** 0.00478*** -0.00720*** -0.0586*** -0.0554*** 0.000208SOE 0.00499** 0.00401** -0.00806*** -0.0242*** -0.0460*** 0.000975PublicInstitution -0.00181 -0.000738 -0.00731*** -0.0516*** -0.0655*** 0.00199Firm-Level Variable Include Include Include Include Include Includelambda -5.543*** -2.774*** 8.594*** 2.246*** 0.672*** -3.149***Constant 10.41*** 0.141*** -4.829*** -13.11*** -0.830*** -1.129***
83
Table 4.24 shows the results of the Heckman two-step selection model. The first-stage probit model estimates the
relation between State control rights and Operating Revenue. The second-stage model estimates the relation
between Operating Revenue and state controllers with corrected self-selection.
*Significance at 10% level. **Significance at 5% level. ***Significance at 1% level.
Table 4.24 Heckman Two-step Selection Model of Operating Revenue
Government Department Asset Bureau SASAC SOE Public Institution
First Stage RegressionOperatingRevenue -0.0036*** -0.0042*** -0.0039*** 0.1118*** 0.0027** -0.0033***Firm-Level Variable Include Include Include Include Include Include
Second State RegressionGovernment -0.0125*** -0.00994*** -0.00575*** 0.0132** 0.00337 -0.00199Department -0.0119*** -0.00928*** -0.00549*** 0.0110** 0.00441 -0.00393*AssetBureau -0.0114*** -0.00825*** -0.00588*** 0.0235*** 0.00558 -0.00152SASAC -0.00856*** -0.00686*** -0.00436*** 0.0441*** 0.0151*** 0.00082SOE -0.00847*** -0.00651*** -0.00540*** 0.0042 0.0194*** -0.0024PublicInstitution -0.00814* -0.00641** -0.00598*** -0.00049 -0.0331*** -0.0108***Firm-Level Variable Include Include Include Include Include Includelambda 5.235*** 2.395*** 6.222*** -2.180*** -4.579*** 5.780***Constant -13.16*** -1.460*** -4.099*** 12.14*** -0.249*** -0.311***
84
Appendix A. Explanation of Ownership Classification
The following section provides the details of the classification.
State Ownership The state ownership is divided 14 sub-categories, comprising the government, government
department, asset bureau, SASAC, state-owned enterprise at different administrative levels and
public institution. Besides the administrative level, the state ownership is divided based on the
objective and function of every governmental agency.
Government The government is the integration of governmental agencies and departments. It has the
responsibility to supervise governmental departments and implement reforming policy. The
prime minister Li Keqiang points out that it is necessary to promote the reform of government
regulation system. Li said governments at all levels must implement fair regulations and
decentralize power to increase market vitality and social creativity. (Lu, 2016) Furthermore,
central government pay attention to social responsibility and people's livelihood, while the
local governments have the capability and responsibility to implement specific policies
regarding respective economic and social situation. I divide the government into two levels:
provincial and municipal governments. As the municipal government directly under central
government have the same administrative level with provincial government, the municipal
governments directly under central government, namely Beijing, Shanghai, Tianjin,
Chongqing, are classified as provincial government. This standard is applied to all state
ownership. The proportion of listed firm directly controlled by government was 5.09% in 2003,
85
and declined to 2.91% in 2009 and 1.75% in 2015. The decrease of governmental controllers
indicates the government is releasing its control rights on listed firms constantly.
SASAC The State Asset Supervision and Administration Commission of the State Council (SASAC) is
a governmental agency authorized by the State Council. The SASAC performs investors'
responsibilities, supervises and oversees the management and operation of state-owned assets
on behalf of the central government. The commission was established in 2003. The SASAC
has five primary functions: First, SASAC is responsible for supervising the preservation and
increment of the value of the state-owned assets; Second, SASAC leads and promotes the
reforming and restructuring of state-owned enterprises; Third, SASAC has the rights to
establish corporate executives selection system and appoint/remove the top executives of the
supervised enterprises; Forth, SASAC is qualified to urge the supervised enterprises to hand
the state-owned capital profits over to the state and formulate operational budget; Fifth,
SASAC also engages in working out draft laws and regulations for supervised enterprises.
(SASAC Website) SASAC is the only ad hoc governmental agency directly under the state
council and has the closest relation with SOEs. The director of SASAC, Xiao Yaqing,
discussed at the press conference of the Fifth Session of the Twelfth National People’s
Congress that SASAC in conjunction with the relevant departments would issue 38 pieces of
concrete regulations and plans for the reform of SOEs. (Yu and Sun, 2017) Xiao also pointed
out that SASAC has the significant responsibility of the state-owned assets supervision.
SASACs include central SASAC which is affiliated to central government and local SASAC
which is affiliated to local government. The study divides the SASACs into three categories:
Central SASAC, Provincial SASAC, and Municipal SASAC. The proportion of SASAC
controllers has inverted U-shaped trend. The listed firm controlled by SASAC only accounted
86
for 6.5% of all listed firms. The number rose to 40.14% in 2009 and then dropped to 28.61%
in 2015. The increase of SASAC controllers is due to the establishment of SASAC in 2003.
The control rights of different governmental agencies were transferred to SASAC since 2003.
However, with the reform of listed firms in recent years, the control power of state is
continuously diluted.
Asset Bureau Besides the SASAC, there are other asset management and operation agencies of the
government. These asset management governmental agencies are distinguished from SASAC
based on their functions. For example, the Beijing State-owned Cultural Assets Supervision
and Administration office, which is established in 2012, focuses on the supervising and
regulating state-owned cultural assets rather than the general state-owned assets. (SOCASAO
Website) Some asset management agencies act as the sub-level entity of SASAC. For example,
Foshan Shunde district State-owned Assets Administration Office is the subsidiary of Foshan
Shunde district SASAC. (Foshan Shunde district State-owned Assets Administration Office
Website) All the state-owned asset management agencies are classified into this category and
further divided based on central, provincial and municipal level. The asset bureau acts as
complements of SASAC. Unlike SASAC, the proportion of asset bureaus has a downward
trend with a figure of 6.66% in 2003, 2.06% in 2009 and 0.55% in 2015.
Government Department The government departments such as the ministry of education have different disparate
objectives from SASAC. For example, the ministry of education regulates all aspects of the
educational system in mainland China. The ministry of education certifies teachers,
standardizes curriculum and textbooks, establishes teaching standards, and monitors the entire
87
education system. It is worthy to mention that the ministry of finance was responsible for
managing state-owned assets. Before 1988, the financial management of state-owned assets of
administrative units was led by the ministry of finance. In the institutional reform of the state
council of 1988, state-owned asset management bureau was established. The ministry of
finance and state-owned asset management bureau had the common duty to manage state-
owned assets. After revocation of the state-owned asset management bureau in the institutional
reform of the state council of 1998, the ministry of finance occupied the primary position of
state-owned assets management until the establishment of SASAC in 2003. The state council
regulated the responsibilities of the SASAC and the ministry of finance. The supervision scope
of SASAC includes all state-owned assets of SOEs. (State Council 2008) The ministry of
finance is responsible for managing the government public property. The objectives of the
ministry of finance and SASAC are very clear and there is no cross. The study classifies the
government departments except for SASAC and other asset management agencies into the
category and separates them on central, provincial and municipal level. Similar with the trend
of another governmental agencies, asset bureau, the proportion of listed firms controlled by
government department decreased gradually in recent years.
State-owned Enterprise The state-owned enterprises can act as legal persons and hold shares of other SOEs. The
enterprises are not departments or agencies of government. They are identified in the study and
divided based on central and local level. Because of insufficient available information about
the local SOEs, these enterprises cannot be further classified on provincial or municipal level.
The enterprises controlled by SOEs took up about 45% of all listed firms in 2003. As the
establishment of SASAC, the number dramatically dropped to 13.44% in 2004 and then
decreased steadily to 2.49% in 2015.
88
Public Institution The public institution is social service organization established by the government operating
education, science and technology, culture, health, media and other activities, such as the
university, press and television station. These institutions do not completely disregard profit.
The ministry of education stressed that the universities must give priority to operating capital
to strengthen the supervision of state-owned assets. The universities also need to enhance the
assessment of operating performance and preserve and increase the value of the state-owned
assets. (Ministry of Education 2015) The study categorizes the social service organizations into
public institution to examine their effect on the firm performance. The public institution only
accounted for a small portion of listed firms’ controllers with a number of 3.41% in 2003 and
fluctuated around 1% in recent years.
Foreign Ownership The foreign ownership comprises two sub-categories: foreign individual and foreign
enterprises. The individuals are distinguished with enterprises as they are entities of different
natures.
Foreign Individual Foreign Individual refers to the individuals who are not the citizens of China, including the
individuals from Hong Kong, Macao and Taiwan. Only 0.24% of listed firms were controlled
by foreigners in 2003, but then the number increased to and fluctuated around 2.8%.
89
Foreign Enterprise
Foreign Enterprise is a common investment vehicle for mainland China-based business
wherein foreign parties can incorporate a foreign-owned limited liability company. For
example, American Airlines, Inc. is classified into this category. About 9.44% of listed firms
were controlled by foreign enterprise in 2003, but the portion of foreign enterprise controllers
declined significantly to 2.51% in 2004 and only 0.7% of listed firms controlled by foreign
enterprises in 2015.
Private Ownership The private ownership comprises two sub-categories: private individual and private enterprises.
The individuals are also distinguished with enterprises in this category.
Private Individual Private Individual refers to the individuals who domestic citizens of China, excluding the
individuals from Hong Kong, Macao and Taiwan. Only 12.69% of listed firms were controlled
by private individuals in 2003. However, as the ongoing reforms implemented by Chinese
government, the proportion of private individual controllers has a significantly upward trend
with a figure of 38.25% in 2009 and 57.52% in 2015.
Private Enterprise Private Enterprise refers to the business or company that is managed by independent companies
or private individuals rather than being controlled by the state. For example, Beijing Haidian
90
Technology Development Co., Ltd. is classified into this category. The percentage of private
enterprise controllers is stable and fluctuates around 0.5% from 2003.
Other Ownership
The Other category includes Operating Unit, Collectively-owned Enterprise and Social
Organization. They cannot be classified into State, Foreign and Private ownership.
Operating Unit Operating Unit is one type of economic organization with their own name, address, fixed
operation place, institutional framework, financial system, and employees. Enterprise
Operating Unit cannot have legal person status, control and dispose of the property or bear civil
liability independently. Operating Unit cannot be treated as a complete company.
Collectively-owned Enterprise Collectively-owned Enterprise refers to the independent commodity-economy organization
based on public ownership. The profit of production benefits all its members. Collectively-
owned Enterprise is a feature of socialism and not owned by any specific entity or individual.
Social Organization
Social organization is a pattern of relationships between and among individuals and social
groups. For example, Employee Shareholding Committee of Dachang Group Co., Ltd. As
Labor Union Committee of Hainan Airlines Co., Ltd. Are classified into the category. These
organizations are official or unofficial leagues, associations or groups which can hold shares
of listed firms but do not have the nature of company. Operating Unit has acted as the
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controllers of listed firms since 2012, and the percentage of firms controlled by operating unit
stays constant at 0.4%. Both portion of the collectively-owned enterprise and social
organization controller are in decline from 2003. About 0.44% of listed firms were controlled
by collectively-owned enterprise in 2015, and the number of social organization controller was
0.62% in 2015.
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Appendix B. Firm Performance Measures
Profitability
Return on assets (ROA) Follow Sun and Tong (2003) and Liao et al. (2014), I adopt ROA as
a proxy for profitability. I calculate ROA as Net profits / Average total assets, where Average
total assets = (Total assets of the start of this year+ Total assets of the end of this year) / 2)
Return on equity (ROE) Follow Sun and Tong (2003) and Liao et al. (2014), I adopt ROE as
another proxy for profitability. I calculate ROE as Net profits / Average shareholders’ equity,
where Average shareholders’ equity = (Total shareholders’ equity of the start of this year+
Total shareholders’ equity of the end of this this year) / 2)
Tobin's Q Follow Wei et al. (2005), I calculate Tobin's Q_1 as (Market value of Equity + Book
Value of Debt)/ Book value of assets. Where Book Value of Debt = Notes Payable + Current
Portion of Long-term Debt (Non-current liabilities due within one year) + Long-term Debt;
Book Value of Asset= Total Asset - Net Intangible Assets – Net Goodwill – Total Liabilities
Net profit margin Net profit/Operating Revenue as another measure of profitability
Logarithm of EBIT EBIT is calculated as the sum of Net Profit, Income Tax Expense and
Financial Expense.
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Employment
Logarithm of the number of Employees is used as the proxy of employment.
Labour Productivity
Logarithm of operating revenue per employee and operating profit per employee as proxies for
labour productivity.
Investment
Logarithm of capital expenditure (measured as change in gross property, plant, and equipment
plus change in intangible assets) as the proxy for investment.
Investment Efficiency
Return on capital employed= (Net Profit + Financial Expense)/(Total Assets – Current
Liabilities + Notes Payable + Short Term Borrowing +Long Term Liability Due Within One
Year) as one measure of investment efficiency.
Return on investment (ROI)= Investment Gains/ (Long Term Equity Investment + Held-To-
Maturity Investment + Trading Financial Assets + Available-For-Sale Financial Assets +
Derivative Financial Assets) as the other measure of investment efficiency.
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Operating Efficiency
Return on sales (ROS) Follow Wei et al. (2005), I use ROS as an alternative performance
measure. I calculate ROS as Operating Profit/Operating Revenue. Where Operating revenue is
the revenue arising from operating business of the company except interests income, net earned
premiums, commissions and fees income.
The Ratio of Selling and Financial Expenses to Operating Revenue is also used to measure
operating efficiency.
Firm Output
Logarithm of Operating Revenue and Operating Profit are the proxies of firm output.
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Appendix C. Control Variables
Director, Supervisor, Executive and Management Following by Demsetz and Villalonga's
(2001), these four variables measure the fraction of shares held by director, supervisor,
executive and management to control the effect of managerial ownership.
SSR is a dummy variable control the impact of Split Share Reform on listed firms. SSR equals
1 if the listed firms had state ownership transfer during the period from 2005 to 2010, otherwise
0.
Size Following Wei et al. (2005), I control for firm size by using the logarithm of total assets.
Leverage Consistent with Bhagat and Bolton (2008), I compute leverage as (long-term debt +
current portion of long-term debt (Non-current Long-term Liability due within one year))
divided by total assets. Gugler et al. (2014) discuss that leverage is causally negatively
associated with large individual investor control if leverage solves the free cash flow problem
and thus there is less need of direct shareholder monitoring in more levered firms. Leverage
might however be endogenous, if large individual investors systematically choose a different
capital structure than other owners. For example, large individual investors may choose larger
leverage to retain control or they may choose lower leverage to reduce the overall riskiness of
the firm. Indeed, leverage is used strategically by control motivated blockholders.
Firm age is the number of years since the firm's establishment (Firm age). It is believed that as
firms age, they become more complex and more mature in management. Therefore, firm age
may also be an appropriate control variable in the analysis. Chen (2015)
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Crisis is a dummy variable controls the impact of recent financial crisis on listed firms. The
global financial crisis in 2007 brought shocks to Chinese capital market, and then Chinese
government implemented several stimulated policies to recover economy. I identify the
financial crisis period from 2007 to 2010. SSR equals 1 if the sample year is from 2007 to 2010,
otherwise 0.
Appendix D. Estimation Models
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The part shows the models used to estimate the effect of controllers on different aspects of firm
performances.
Equation (1) estimates the effect of ultimate controller on firm profitability.
(1)
!"#$%&'(%)%&*,,. = 01 + 034#5&"#))6",,. + 078%"9 − )6;6)<'&%'()6=,,. + >3?&#@A4#B6,,. + >CD6'",,. + E,,.
Where !"#$%&'(%)%&*,,. is the measure for firm profitability of firm i in year t, namely ROA, ROE, Tobin
Q, Net profit margin and EBIT;
4#5&"#))6",,.is the dummy variable indicating the type of ultimate controller of firm i in year t;
8%"9 − )6;6)<'&%'()6=,,. are the variables controls firm-level effects of firm i in year t, namely
Director, Supervisor, Executive, Management, SSR, Size, Leverage, Firm Age and Crisis;
?&#@A4#B6,,. is the fixed effects variable identifying the unique code of firm i in year t;
D6'",,. is the fixed effects variable identifying year of firm i in year t.
Equation (2) estimates the effect of ultimate controller on employment.
(2)
F9G)#*965&,,. = 01 + 034#5&"#))6",,. + 078%"9 − )6;6)<'&%'()6=,,. + >3?&#@A4#B6,,. + >CD6'",,. + E,,.
Where F9G)#*965&,,.is logarithm of the number of employees of firm i in year t;
4#5&"#))6",,.is the dummy variable indicating the type of ultimate controller of firm i in year t;
8%"9 − )6;6)<'&%'()6=,,. are the variables controls firm-level effects of firm i in year t, namely
Director, Supervisor, Executive, Management, SSR, Size, Leverage, Firm Age and Crisis;
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?&#@A4#B6,,. is the fixed effects variable identifying the unique code of firm i in year t;
D6'",,. is the fixed effects variable identifying year of firm i in year t.
Equation (3) estimates the effect of ultimate controller on labour productivity.
(3)
H'(#I"!"#BI@&%;%&*,,. = 01 + 034#5&"#))6",,. + 078%"9 − )6;6)<'&%'()6=,,. + >3?&#@A4#B6,,. + >CD6'",,. + E,,.
Where H'(#I"!"#BI@&%;%&*,,. is the Operating Revenue per Employee and Operating Profit per Employee
to measure labour productivity of firm i in year t;
4#5&"#))6",,.is the dummy variable indicating the type of ultimate controller of firm i in year t;
8%"9 − )6;6)<'&%'()6=,,. are the variables controls firm-level effects of firm i in year t, namely
Director, Supervisor, Executive, Management, SSR, Size, Leverage, Firm Age and Crisis;
?&#@A4#B6,,. is the fixed effects variable identifying the unique code of firm i in year t;
D6'",,. is the fixed effects variable identifying year of firm i in year t.
Equation (4) estimates the effect of ultimate controller on investment.
(4)
J5;6=&965&,,. = 01 + 034#5&"#))6",,. + 078%"9 − )6;6)<'&%'()6=,,. + >3?&#@A4#B6,,. + >CD6'",,. + E,,.
Where J5;6=&965&,,. is the logarithm of Capital Expenditure of firm i in year t;
4#5&"#))6",,.is the dummy variable indicating the type of ultimate controller of firm i in year t;
8%"9 − )6;6)<'&%'()6=,,. are the variables controls firm-level effects of firm i in year t, namely
Director, Supervisor, Executive, Management, SSR, Size, Leverage, Firm Age and Crisis;
?&#@A4#B6,,. is the fixed effects variable identifying the unique code of firm i in year t;
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D6'",,. is the fixed effects variable identifying year of firm i in year t.
Equation (5) estimates the effect of ultimate controller on investment efficiency.
(5)
J5;6=&965&F$$%@%65@*,,. = 01 + 034#5&"#))6",,. + 078%"9 − )6;6)<'&%'()6=,,. + >3?&#@A4#B6,,. + >CD6'",,. + E,,.
Where J5;6=&965&F$$%@%65@*,,. is the Return on Capital Employed and ROI of firm i in year t;
4#5&"#))6",,.is the dummy variable indicating the type of ultimate controller of firm i in year t;
8%"9 − )6;6)<'&%'()6=,,. are the variables controls firm-level effects of firm i in year t, namely
Director, Supervisor, Executive, Management, SSR, Size, Leverage, Firm Age and Crisis;
?&#@A4#B6,,. is the fixed effects variable identifying the unique code of firm i in year t;
D6'",,. is the fixed effects variable identifying year of firm i in year t.
Equation (6) estimates the effect of ultimate controller on operating efficiency.
(6)
KG6"'&%5LF$$%@%65@*,,. = 01 + 034#5&"#))6",,. + 078%"9 − )6;6)<'&%'()6=,,. + >3?&#@A4#B6,,. + >CD6'",,. + E,,.
Where KG6"'&%5LF$$%@%65@*,,. is the ROS and the Ration of Selling and Financial Expenses to Operating
Revenue of firm i in year t;
4#5&"#))6",,.is the dummy variable indicating the type of ultimate controller of firm i in year t;
8%"9 − )6;6)<'&%'()6=,,. are the variables controls firm-level effects of firm i in year t, namely
Director, Supervisor, Executive, Management, SSR, Size, Leverage, Firm Age and Crisis;
?&#@A4#B6,,. is the fixed effects variable identifying the unique code of firm i in year t;
D6'",,. is the fixed effects variable identifying year of firm i in year t.
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Equation (7) estimates the effect of ultimate controller on firm output.
(7)
KI&GI&,,. = 01 + 034#5&"#))6",,. + 078%"9 − )6;6)<'&%'()6=,,. + >3?&#@A4#B6,,. + >CD6'",,. + E,,.
Where KI&GI&,,. is the logarithm of Operating Revenue and Operating Profit of firm i in year t;
4#5&"#))6",,.is the dummy variable indicating the type of ultimate controller of firm i in year t;
8%"9 − )6;6)<'&%'()6=,,. are the variables controls firm-level effects of firm i in year t, namely
Director, Supervisor, Executive, Management, SSR, Size, Leverage, Firm Age and Crisis;
?&#@A4#B6,,. is the fixed effects variable identifying the unique code of firm i in year t;
D6'",,. is the fixed effects variable identifying year of firm i in year t.
