THE CHINESE STOCK MARKET - Differences in performance in consideration to level of state ownership

Abstract

We examine the success of the privatization reform in China by evaluating the changes in performance of the State-Owned Enterprises (SOEs) after the Split-Share Structure reform in 2005, considering the changes in ownership structure. This study investigates how the ongoing privatization process in China is affecting the performance of SOEs. Existing studies made in other economies confirm that private ownership has a positive impact on the performance of the SOEs in contrast to state ownership. The Split-Share Structure reform is the large event by the Chinese government in order to reach the establishment of a modern corporate system. The methodology utilized consists of a Random Effects panel analysis. The data covers annual data for 1135 firms listed on the Shanghai Stock Exchange and the Shenzhen Stock Exchange over a six-year period, ranging from 2003 to 2008. The result from this study shows that the state ownership ratio of Chinese SOEs have been decreasing after the reform was introduced in 2005. Further, the result implies significant improvements in performance of the SOEs after the reform. The result from this study also shows that private ownership is superior to state ownership in consideration to improvements in performance, since an increase in the state ownership ratio would lead to a decrease in the market value of the firm.