Ownership control and rights offerings in Chinese listed firms

Abstract

Most Chinese listed companies were transformed from state-owned enterprises (SOEs). Institutional transformation results in an ownership structure that is characterized by highly concentrated ownership and state-owned shares, which may exert an influence on corporate finance. In China, listed companies rely heavily on equity for capital needs, but the government blockholders often subscribe to no shares or to partial shares; they tunnel seasoned offering equity (SEO) capital to their nonprofit units through related party transactions. Therefore, we examine large shareholders' rights offering behavior and firms' subsequent operating performance. The results reveal that with a higher ratio of state-owned shares, large shareholders tend to give up all preemptive rights for new shares of stock. Evidence confirms a predicted positive relation between large shareholders' full rights subscription behavior and firms' subsequent operating performance.