Corporate governance and firm performance: Evidence from the Chinese Stock Markets

Abstract

In this paper, we investigate how ownership structure affects the market performance of the Chinese publicly listed companies. The sample consists of all firms listed in the Shanghai and Shenzhen Stock Exchanges from 1998 to 2001. We find that a firm's market performance is positively related to the proportion of legal person shares but negatively related to the proportion of shares owned by the state. Using cross-sectional regressions, we further find that corporate value decreases with a firm's increasing leverage and size, while surprisingly foreign ownership does not increase a firm's market performance. Moreover, ST (Special Treatment) firms are used to test the effectiveness of corporate governance in China, and our results show that the change of ownership structure cannot improve the firm performance of Chinese listed companies.