Ownership structure and corporate performance: evidence from China

Transcription

1 Name: Kaiyun Zhang Student number: / Track: Economics and Finance Supervisor: Liting Zhou Ownership structure and corporate performance: evidence from China Abstract This paper examines the relation between the ownership structure and the performance of firms if the ownership is made multi-dimensional and treated as an endogenous variable. The relationship between ownership structure and corporate performance has been intensively researched in both transition and market economies. The China s non-tradable share reform program provides evidence to investigate this relationship. For a cross section of 803 Chinese listed firm during 2007 and 2011, I find a negative relation between ownership concentration and corporate performance. By differentiating shareholders by types of ownership, I find that certain types of shareholders can influence corporate performance. 1. Introduction The relation between ownership structure and corporate performance has been widely debated in the corporate finance literature. The research on this topic dates back to Berle and Means (1993), who contend that dispersed ownership structure significantly empowered managers whose interests do not align with the interest of shareholders. Because of this conflict of interests, managers do not act in the interests of shareholders. As a consequence, corporate resources are at the risk of not being used to maximize the value of shareholders. This finding is in accord with the empirical researches conducted by Shleifer and Vishny (1986), who found a strong positive correlation between ownership concentration and corporate performance and ascribe it to the influence of better monitoring. Other empirical researches have supported this view. Xu and Wang (1997) find the corresponding results by conducting a similar research on a sample of Chinese listed firms. This view is challenged by Demsetz and Lehn (1985), who point out that ownership structure should be treated as an endogenous outcome of managerial decisions that reflect the impact of shareholders and financial markets. Whether dispersed or not, the ownership structure is affected by the profit-maximizing interests of shareholders. Therefore, there should not be systematic relation between ownership structure and firm performance. Empirical researches conducted by Demsetz and Lehn (1985) provide evidence of endogeneity of firm s ownership structure. They have examined the validity of Berle and Means research:

2 When ownership structure is treated as an endogenous variable, no evidence of linear relation between profit rate and ownership concentration is found. Many empirical researches that examine the relation between ownership structure and corporate performance had difficulties with controlling for firm characteristics to ownership. Possible reduction or elimination of endogeneity problem can help to investigate the direction of causality. China s nontradable share reform program privatized state-owned corporations and the bidding process guaranteed elimination of inside-trading. In this paper, I am going to examine the relationship between ownership structure and corporate performance of the listed companies in Chinese market following the non-tradable share reform program. The relation can be intuitively understood as follow: ownership structure demonstrates the power and surveillance level within the enterprise, which directly affect the performance of enterprises. Ownership structure that features high concentration under government control results in difficulties in measuring firm value and manager performance. Therefore, this ownership structure is unlikely to be sustainable because there lacks a large owner who bears the consequences of mis-operation and inefficiency. Fan et al. (2007) find that the presence of a politically connected CEO is harmful to the performance and corporate governance of listed enterprises. Therefore, the situation can be worse when the government retains the right to appoint the chief executive officers and operates the enterprise in alignment with its political and social objectives. The privatization process has been gradual, the program was launched on May 9 th, 2005, with only four listed firms. Three out of four firms successfully completed the reform program in 35 days on average. In the second stage of the reform program, 42 firms were involved and they took 47 days on average to finalize the process. By the end of 2006, the non-tradable share reform program had completely worked out. More than 80 percent of Chinese listed firms had successfully participated in the reform program. Wang et al. (2011) studied the share privatization process in China and investigated how the removal of market frictions is associated with the efficiency gains. They showed that with more tradable shares coming up to the market, size increase is positively related to both the gain in risk sharing and the price impact. After the specifics of the reform program completely worked out by the end of 2006, I expect the reform to bring about substantial changes to the performance of the Chinese listed firms. I relate ownership concentration to two corporate performance parameters for a cross section of Chinese listed firms for a period from 2007 to In particular, I investigate whether firms with more concentrated ownership have changed largely and positively after the non-tradable share reform program in the profit level.

3 This research paper is structured as follows. In Section 2, I am going to provide the background information of China's non-tradable reform program as well as literature review. In Section 3, I will document the sample data and empirical design, followed by analysis of the reported results. Section 4 will present the conclusion. 2. Literature background 2.1 China s non-tradable share reform program In the last few decades, many emerging markets such as Russia, China, Thailand, India etc. have tried to leap from a centrally planned economy to a market-oriented economy by attempting to establish a strong public stock market. However, not all attempts were successful. Countries such as Russia (Barberis, Boycko, Shleifer and Tsukanova, 1996) and Czech Republic who have implemented aggressive policies turned out to be a failure. However, China s privatization process represented one of the most successful examples of gradual reformation. Dates back to the early 1990s, the Chinese government partially privatized some listed state-owned enterprises (SOEs). A split-share structure of listed firms was introduced which includes non-tradable shares (owned by the government) and tradable shares (owned by private investors). Although the split-share structures are common ownership structures in equity markets around the world which is entitled to protect shareholder s rights (Kothare, 1997). The non-tradable shares (NTS) are considered as a unique characteristic of Chinese equity market, where the NTS cannot be traded freely even if the company is listed. China s two stock exchanges, Shenzhen Stock Exchanges (opened in 1990) and Shanghai Stock Exchanges (opened in 1991), featured a split share structure after their establishment. The non-tradable shares have been issued mainly to the founders of firms, business partners or partially to employees and served two main purposes: firstly, since the majority of shares are non-tradable shares, government keeps the control of state-owned firms firmly at its hand and maximize the IPO proceeds (Li et al. 2011). Secondly, only a small portion of shares are allowed to float in the market, it reduces the supply of tradable shares which pushes up the prices of tradable shares floating in the market. Approximately 60% of total shareholdings were non-tradable shares. With both non-tradable and tradable shareholders being assigned exactly the same voting and cash flow rights, tradable shareholders have little power to affect management decision making. Soon the Chinese government and regulatory authorities recognized several problems caused by NTS. First of all, the TS holders are typically minority shareholders who have limited power to affect corporate managerial decisions. Second, the limited free float of NTS made the stock market extremely illiquid, volatile and exhibited the existence of agency problems (for instance: insider trading and market manipulation). Third, the split share structure exhibited

4 weak corporate governance in that listed subsidiaries not only pursued external financing methods to cover up their poor performance, but also engaged in related-party transactions. In April 2005, Chinese government launched a split share structure reform program. By the end of 2006, the non-tradable shares were mostly transferred into tradable shares which were allow to float in the market. Therefore, after the completion of reform program, the ownership structure of Chinese listed firms changed to a great extent. Private investors became the majority shareholders and were assigned increasing power to inspect corporate governance. This reform program represents one of the most important experiments regarding privatization in emerging markets. 2.2 Existing literature of ownership structure and corporate performance Let s take a look at the existing literature background of the relationship between ownership structure and corporate performance of listed firms. According to modern economic theories, in well-developed capital market, separation between ownership and management can drive up company s stock price. However, before the Chinese non-tradable share reform, Chinese capital market is features a highly concentrated ownership structure and top managers directly represent the interests of controlling shareholders. Therefore, in less developed capital market such as China, the motives suggested by the modern economic theory are not relevant here. Early studies began with Berle and Means (1932) who tend to find a positive relation between ownership concentration and accounting profitability. This view is supported by Cubbin and Leech (1983). However, Demsetz and Lehn (1985) found the contradictory results in their research. Demsetz and Lehn (1985) argued theoretically that ownership structure is an endogenous outcome of managerial decisions. They conducted empirical researches that confirmed the insignificance of relationship between ownership concentration and accounting profitability when controlling for other variables. Subsequent empirical studies conducted by Holderness and Sheehan (1988) found the similar conclusion. The dominant theoretical reference in corporate governance studies has been the agency theory (Shleifer and Vishny, 1997). As widely acknowledged, the agency theory analyzes the relationship between principals (owners) and agents (managers) who act on their behalf. Before the non-tradable share reform, most of Chinese listed firms are state-owned. According to the principal-agent problem, under the conditions of incomplete and asymmetric information, there exist problems of potential moral hazard and conflict of interest. Government acting as large shareholders may intervene in the firm s management to maximize government s profit. This action might conflict with the interests of minority (private) shareholders. Since high degree of ownership concentration is the primary determinant of agency cost, the non-tradable share reform can eliminate the agency costs to a great extent.

5 The other stream of corporate governance researches concern control mechanisms that encourage managers to maximize profits. According to Jensen and Meckling (1976), the choice of a privately optimal ownership structure involves a trade-off between risks and incentives. Supporting theories indicated by Fama and Jensen (1983) suggest that larger owners will have a stronger incentive to monitor managers effectively to maximize shareholder value. However, the owner s portfolio risk will have increase with the amount of shares. Since the corporations differ in firm-specific risk, the optimal ownership structure might vary. Vinay et al. (1998) suggested that liquidity plays a significant role in explaining the cross-sectional variation in stock returns. In addition to that, according to Pastor and Stambaugh (2003), expected stock returns are related cross-sectionally to the sensitivities of returns to fluctuation in aggregate liquidity. After the non-tradable share reform program, the Chinese financial market features a dispersed ownership structure where most shares become tradable in the market. Since stock market liquidity and volatility are significantly correlated (Chordia, Sarkar and Subrahmanyam, 2005), with more tradable shares available in the stock market, increased liquidity might reduce the volatility of stock price. Under efficient market portfolio theory, the market portfolio is improved because with the same rate of return, volatility is minimized. Holmstrom and Tirole (1993) studied the value of stock market as a monitor of managerial performance. The amount of information contained in the stock price depends on the liquidity of the market. Concentrated ownership typically reduced the market liquidity, weakened the managerial incentives and led to less market monitoring. With stock market being more liquid, Holmstrom and Titole (1993) showed that the marginal value of information goes up. The increased information flow into the market improves the information content of stock price and enables the firm to design a more efficient managerial contract. Thus the overall performance of listed firms improves. Previous literature suggests that different ownership structures provides different incentives to control and monitor a firm's performance and managerial decisions (Morck, Shleifer and Vishny, 1988). Fan and Wong (2002) point out that ownership concentration implies the level of information asymmetry between managers and shareholders which affects the quality of earnings and firm's accounting choice. Small shareholders share only a small percentage of the benefit, therefore, they would not be interested in monitoring. Shleifer and Vishny (1986) claim that large shareholders have strong incentives to actively monitoring for the purpose of protecting their large investments. Demsetz and Lehn (1985) find that ownership concentration might reduce agency costs by eliminating free-riding problem and increasing effective monitoring. However, highly concentrated ownership structure might lead to conflicts of interest between majority and minority shareholders. Shleifer and Vishny (1997) claim in their research that

6 controlling shareholders may impose their personal preferences to create private benefits even if they might expropriate minority shareholders. 3. Empirical tests 3.1 Data This study investigates whether the ownership structure significantly affects the corporate performance of Chinese public listed firms. The data on firms that involved in the non-tradable share reform program were collected from the website of China Financial Split Share ( the website of Shanghai Stock Exchange ( and the website of Shenzhen stock exchange ( The data contains financial and ownership information of 803 usable samples. The duration of the data range from 2007 to The data includes the net profit and the share of equity held by the top five investors (T5) of publicly listed firms. These data were collected manually from the firms annual reports. I quantify the ownership concentration and sort the data by five different groups: the state, bank sponsored funds, non-bank sponsored funds, domestic strategic investors and foreign strategic investors. Before the non-tradable share reform program, the state is the majority shareholders of the publicly listed firms. However, after the non-tradable share reform program was completed, the investment funds and domestic strategic investors became the majority shareholders. Table 1 Summary Statistics of Variables Panel A: Ownership concentration indicators: Summary statistics of Share of top 5 investors (T5) Variable Obs Mean Std. Dev. Min Max T T T T T Panel B: Corporate performance indicators: Summary statistics of net profit Variable Obs Mean Std. Dev. Min Max profit profit profit profit profit

7 As Demsetz and Lehn (1985) suggested in their research paper, I use the share of equity held by the top five shareholders as the indicators for the ownership concentration. Summary statistics for these variables are indicated by Panel A of Table 1. The data range from 2007 to As can be seen from the table, the magnitude of T5 increases by only 3.5% between 2007 and The change of ownership concentration is not significant. I use net profit that listed firms publish on their annual reports as indicators of corporate performance. The hypothesis is that corporate performance is improved if the annual profit is increased. The amount is measured in millions of Chinese yuan. As indicated by Panel B of Table 1, the profit level of listed firms between 2007 and 2011 increased by 60.39%. The profit of listed firms increased by 24.64% from 2007 to The amount dropped by 17.91% from 2008 to One possible explanation for such high reduction in firms profit is the financial crisis that burst out in The global economy went through a downturn. The majority economies are affected by the world financial crisis. China s economy is heavily dependent on exports. The global economic recession reduce the spending power and demand of the world. Foreign trade around the world has suffered tremendously. China s economy is heavily affected by the shrink of exports. However, the economy recovered quickly from 2009, the profit increase by 56.77%. Fig. 1 historical CPI China (yearly basis) full term Since the corporate performance of Chinese listed firms is measured in millions of Chinese yuan. In order to make the yearly data comparable, we need to estimate the real value of currency. One common method is to take into consideration the historical CPI of China. As can been seen from the above figure. The inflation rate rose since 2007, peak at 2008 and dropped dramatically in After the CPI dropped to below 0% in the middle of 2009, it continued to rise until Therefore, the inflation of China is not stable during the period 2007 to The real value of money increases when there is deflation. Therefore, the profit of 2009 should be higher than its nominal value. Table 2 Ownership by Type: Summary Statistics

8 Panel A: Ownership concentration differentiated by types in 2011 Variable Obs Mean Std. Dev. Min Max Bankspo~ Nonbank~ domesti~ Foreign~ State T Panel B: Ownership concentration differentiated by types in 2010 Variable Obs Mean Std. Dev. Min Max Bankspo~ Nonbank~ domesti~ Foreign~ State T Panel C: Ownership concentration differentiated by types in 2009 Variable Obs Mean Std. Dev. Min Max Bankspo~ Nonbank~ domesti~ Foreign~ State T Panel D: Ownership concentration differentiated by types in 2008 Variable Obs Mean Std. Dev. Min Max Bankspo~ Nonbank~ domesti~ Foreign~ State T

9 Panel E: Ownership concentration differentiated by types in 2007 Variable Obs Mean Std. Dev. Min Max Bankspo~ Nonbank~ domesti~ Foreign~ State T I differentiate between types of shareholders. After the Chinese non-tradable share reform program was completed, two category of owners emerged in the financial market and became the majority shareholders of publicly listed firms. Non-bank sponsored investment funds and domestic strategic investors hold the largest stake of publicly listed firms on average. Non-bank sponsored funds include domestic securities investment funds, mutual funds, local investment firms, investment funds of insurance company, venture capital and national social security funds, local strategic investors include both local firms and individual investors. A typical firm is normal financed by one or multiple local limited liability companies. The T5 shareholder is typically the CEO of the firm, other limited liability firms who think the company is worth investing or other firms within the same industry who can share the joint efforts of research and development and the profit opportunity. For example, some research institutes might have some portion of shares of the limited firm who can commercialize their research findings. State-owned shares are not floating freely in the market, in this empirical research, I only consider the shares outstanding (that float freely in the capital market). 3.2 Empirical results I estimate regressions using a selected samples of 732 listed firms the observations consist of 110 firms with five years of data, 124 firms with four years of data, 139 firms with three years of data, 161 firms with two years of data and 198 firms which just went listed in The OLS estimation results are reported in Table 3. In the year by year regressions, Table 3 reveals that the lower the concentration of ownership, the higher the profit of listed firms. The profits of listed firms are negatively correlated with ownership concentration at 10% significance level. The coefficient on the squared term of ownership concentration (T5) is negative and reported significant at 5% level. However, Most firms which just went listed were owned mostly by investment firms, investment funds, research institutes and individuals. Their ownership structure were highly concentrated. It is the case for most growing firms. For mature and stable growing firms who were listed many years ago, their

10 ownership structure are dispersed compared to immature firms. Shareholders range from private investors, banks, funds and other corporations. It is hardly that the T5 were more than 50%. In transport, construction and mining industry where large amounts of funds are needed, foreign investors and funds share a portion of ownership. Also, for mature and stable growing firms, highly concentrated ownership might lead to agency problems since large shareholders might maximize their own benefits and damage the interests of minority shareholders. Table 3 Estimation Results OLS Estimation Source SS df MS Number of obs = 732 F( 16, 715) = 9.01 Model e Prob > F = Residual e R-squared = Adj R-squared = Total e Root MSE = profits Coef. Std. Err. t P> t [95% Conf. Interval] T T5square IT agribusiness apparel brewing chemistry construction food furniture machinery metals mining others realestate transport _cons The sector dummies are jointly significant at 1% level. The sector dummies provide some evidence of the patterns. Construction, mining and transport have positive and statistically significant coefficients in OLS estimation. The coefficient for construction sector is significant at 5% level while mining and

11 transport sectors are significant at 1% level. The regression results yield some support for the hypothesis that less ownership concentration leads to better corporate performance. This result is in line with earlier empirical researches conducted by Shleifer and Vishny (1997) and Demsetz and Lehn (1985) who argue that dispersed ownership structure might reduce agency problem and enhance effective monitoring, thus improve corporate performance. Since highly concentrated state-ownership is the primary cause of agency problem because of corruption and lack of motivation of effective monitoring, non-tradable share reform problem eliminate the agency costs to a great extent, thus firms perform better. Next, I am going to test for the relevance of ownership concentration while controlling for the endogeneity of ownership structure. Since managerial performance is less observable in growing firms which are mostly owned by their original investors such as venture capital firms, investment funds and individuals, better corporate performance might be an endogenous outcome of individual operating capacity rather than the effect of improved corporate governance. Since growth opportunities might vary in different industries, it can affect ownership structure. The empirical tests so far has assumed that ownership concentration of any type of investors lead to improvement of corporate governance. However, following the China mass privatization, domestic strategic investors, bank and non-bank sponsored investment funds became the majority shareholders. As Table 2 indicates, non-bank sponsored fund and domestic strategic investors had accumulated significant ownership during the period 2007 and These two categories of shareholders may have different influence on corporate performance. Throughout all five ownership categories, the average stake in publicly listed firms that top five shareholders have acquired is similar from 2007 to The change of ownership stake through 2007 to 2011 showed an interesting pattern. The bank sponsored fund owned an average stake of 4.56% in 2007 and 3.94% in The figure has dropped gradually and sticked around 4%. The non-bank sponsored fund owned an average stake of 15.04% in 2007 and has increased until 17.16% in The average stake of domestic strategic investor has increased slightly from 39.28% in 2007 to 40.48% in The average stake of foreign strategic investor has changed only a little, from 14.68% in 2007 to 14.21% in The average stake of state ownership has not changed significantly as well, from 20.63% in 2007 to 19.99% in This provide evidence of the successful completion of China s non-tradable share reform program. Among all the shares that are floating in the market, the state-ownership is the minority part of the overall ownership structure of typical listed firms. Among the top five shareholders, domestic strategic investors became the majority owners. There is a bias towards larger concentration in the hands of domestic strategic investors rather other the state. Table 4 Concentration and Ownership Types

12 Panel A: OLS Estimation of 2011 Source SS df MS Number of obs = 164 F( 19, 144) = 6.83 Model e Prob > F = Residual e R-squared = Adj R-squared = Total e Root MSE = profit2011 Coef. Std. Err. t P> t [95% Conf. Interval] T T52011square Banksponsoredfund Nonbanksponsoredfund domesticstrategicinvestor IT agribusiness apparel brewing chemistry construction food furniture machinery metals mining others realestate transport _cons Panel B: OLS Estimation of 2010 Source SS df MS Number of obs = 166 F( 19, 146) = 4.54 Model e Prob > F = Residual e R-squared = Adj R-squared = Total e Root MSE = profit2010 Coef. Std. Err. t P> t [95% Conf. Interval] T T52010square Banksponsoredfund Nonbanksponsoredfund domesticstrategicinvestor IT agribusiness apparel brewing chemistry construction food furniture machinery metals mining others realestate transport _cons

13 Panel C: OLS Estimation of 2009 Source SS df MS Number of obs = 145 F( 19, 125) = 2.96 Model Prob > F = Residual e R-squared = Adj R-squared = Total e Root MSE = profit2009 Coef. Std. Err. t P> t [95% Conf. Interval] T T52009square Banksponsoredfund Nonbanksponsoredfund domesticstrategicinvestor IT agribusiness apparel brewing chemistry construction food furniture machinery metals mining others realestate transport _cons Panel D: OLS Estimation of 2008 Source SS df MS Number of obs = 106 F( 19, 86) = 3.05 Model Prob > F = Residual R-squared = Adj R-squared = Total e Root MSE = profit2008 Coef. Std. Err. t P> t [95% Conf. Interval] T T52008square Banksponsoredfund Nonbanksponsoredfund domesticstrategicinvestor IT agribusiness apparel brewing chemistry construction food furniture machinery metals mining others realestate transport _cons

14 Panel E: OLS Estimation of 2007 Source SS df MS Number of obs = 97 F( 17, 79) = 2.50 Model Prob > F = Residual e R-squared = Adj R-squared = Total e Root MSE = 3889 profit2007 Coef. Std. Err. t P> t [95% Conf. Interval] T T52007square Banksponsoredfund Nonbanksponsoredfund domesticstrategicinvestor IT agribusiness apparel brewing chemistry construction food furniture metals mining realestate transport _cons Regression analysis based on different time-series are applied to investigate the influence of ownership concentration and different ownership types on corporate performance. Regression results are provided in Table 4. The variables consist of five different ownership categories in total ownership of a listed firm. As a result, the coefficients of regressions can indicate how the change of ownership stake of each category affects corporate performance. As shown in Table 4 Panel A, non-bank sponsored fund and domestic strategic investors are associated with corporate performance. The regression results are negative and statistically significant. The result can be interpreted as 1% increase of ownership stake of non-bank sponsored fund and domestic strategic investor can lead to a reduction of profit of and millions Chinese yuan respectively. However, the regression results from Table 4 Panel B through Panel E display some interesting patterns. Panel B through Panel D do not show statistically significant results. Panel E shows a positive and statistically significant relation between ownership stake of bank sponsored fund and corporate performance. The non-tradable share reform program was completed by the end of Since four banking giants (Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank) are state-owned and represent the majority financial capital, the injection of financial capital from these banks can be an alternative representation of state-ownership. Given the

15 properties of Chinese banking giants, it is hard to determine the influence of bank sponsored fund on corporate performance since these banking giants represent the state. Certain ownership types as well as ownership concentration seem to affect corporate performance. 4. Conclusions The Chinese non-tradable share reform program provide a unique experiment of empirical researches on the relation between ownership structure and corporate performance in emerging markets. Empirical analysis of ownership structure and firms profits for 803 Chinese listed firms provide some evidence regarding the association between ownership concentration and profits of listed firms. OLS regression reported that less concentrated ownership is associated with higher profits of listed firms. By differentiating between types of owners, some evidence is found regarding the relation between ownership structure and corporate performance. It is reported that certain types of owners, namely, nonbank sponsored funds and domestic strategic investors, can affect the performance of listed firms. The evidence indicates that the overall ownership concentration and certain types of shareholders can influence the profit level of listed firms. Even though China had completed the non-tradable share reform program. There still exist some stateowned corporations in major industries such as metals, mining, construction, machinery, transport etc. In some key branches of economies such as petroleum industry, coal industry and shipbuilding industry, the state still holds non-tradable shares and less than 50% of shares are allowed to float freely in the market. As mentioned above, four banking giants consist of the majority financial capital from banks. As these banks were owned by the government, it is hard to determine the influence of bank sponsored funds on corporate performance. Since state-ownership and highly concentrated ownership structure are the primary causes of agency problem, the Chinese capital market is imperfect and can be further improved. Determine the true costs and benefits of Chinese mass privatization process is beyond the scope of this empirical research. Earlier literature argues that the share reform program allows minority shareholders to reflect their concerns about agency problem (Wang et al., 2011). Minority shareholders should be allowed to involve in the financial market mechanism in order to improve the quality of corporate governance. In this empirical research, it is shown that the non-tradable share reform program has led to a highly dispersed ownership structure. As can be seen in Table 2, the average ownership stake of the state is around 20% from 2007 through Domestic strategic investor holds the major stake. Non-bank sponsored funds and foreign strategic investors own similar stake. Therefore, domestic strategic investor such as individuals has been involved in the financial market mechanism and it has brought about changes in the profit level of listed firms. This empirical study provides evidence of negative relation between

16 ownership concentration of certain types, namely non-bank sponsored fund and domestic strategic investor, and corporate performance. When investigating the association between ownership concentration and corporate performance, several relevant questions should be addressed here. The most important question is that how does certain types of ownership concentration affects performance. In this empirical study, I cite two types of firms. Mature firms that have stable growing opportunities and growing firms that have high growing opportunities. For mature firms, dispersed ownership structure could eliminate agency problem and improve the health of corporate governance since board of directors are elected to monitor managers to act on behalf of shareholders. For growing and immature firms, concentrated ownership structure can help the firm to quickly adjust to the change of the environment and to seek growth opportunities. Therefore, two hypotheses can be formulated here. One hypothesis is that dispersed ownership structure lead to higher profit level for mature listed firm. The other is that highly concentrated ownership helps growing firms to perform better. Another question related to the topic is that to what extent does the imperfect capital market affect the performance of listed firms. Since Chinese government still holds some state-owned corporations in some key branches of economies, the imperfect capital market could impose some barriers on the further development of listed firms in some industries. It is key to know what are the obstacles and to what extent do these barriers hamper the performance of listed firms. These research questions merit further studies. Reference: Barberis, N., Boycko, M., Shleifer, A., and Tsukanova, N. (1996) How does privatization work? Evidence from the Russian shops, Journal of Political Economy, 104: Berle, A., and Means, G. (1933) The Modern Corporation and Private Property. New York: Macmillan. Chordia, T., Sarkar, A., and Subrahmanyam, A. (2005) An empirical analysis of stock and bond market liquidity, Review of Financial Studies, 18: Claessens, S., Djankov, S., and Lang, L.H.P. (2000) The separation of ownership and control in east Asian corporations, Journal of Financial Economics, 58: Cubbin, J., and Leech, D. (1983) The effect of shareholding dispersion on the degree of control in British companies: theory and measurement. Economic Journal, 93(370): Demsetz, H., and Lehn, K. (1985) The structure of corporate ownership: causes and consequences, Journal of Political Economy, 93: Fama, E.F., and Jensen, M.C. (1983) Agency problems and residual claims, Journal of Law and Economics, 26(2): Fan, J.P.H., Wong, T.J., and Zhang, T.Y. (2007) Politically-connected CEOs, corporate governance and

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