The Relationship Between Managerial Ownership And Firm Performance In Listed Chinese Firms

While stepping into the new century, China economy has maintaineda robust growth momentum, and people pay more and more attentions toChinese listed companies, which is the representative of economy. Basedon the growing demands of firm performance, more and more listedcompanies concern and carry out managerial ownership. However,listed companies can not carry out managerial ownership smoothlybecause of the existence of non-tradable shares,the dominance of thestate shares,China's special conditions, institutional background and legalenvironment. It is expected that ongoing reform of the whole circulationof China's listed companies'shares will get rid of considerable part of theconstraints, and researches on managerial ownership and firmperformance before reform will help the comparative study in future.Here, on the basis of summarizing the related researches and literatures on managerial ownership and firm performance by foreign andnational scholars, considering the status of managerial ownership byChinese firms, we put forward two hypotheses: managerial ownership isnon-linearly related to firm performance; firm performance is positivelyrelated to managerial ownership. Found two models and apply empiricalanalysis. By employing an unbalanced panel sample of more than threehundred listed firms from 2002 to 2004 in SHANGHAI STOCKEXCHANGE, this paper studied the relationship between managerialownership and firm performance through Ordinary Least Squares (OLS)recession model,Two-stage Least Squares regression model and asimultaneous equation system. By using SPSS, the results certificate thatthe sample data are fitted with theoretical model preferably.This paper deepens the studies of managerial ownership and firmperformance in China, achieves the gain of analyzing the effects underspecial institutions, and supplies useful advices on arranging theircorporation governance effectively and improving firm performanceefficiently; it also proves important effects of endogeneity of OwnershipStructure.Main conclusions are as follows:First of all, from the results of the determinants of firm performanceusing OLS method, we can find that the relationship between theperformance of firms and managerial ownership is cubic in form, or that is a∽shaped. After controlling the industrial effect,year's fluctuationof performance and firm level fixed effect, the whole model can explainthe results more strongly.Second, from the results of the determinants of managerialownership using OLS method, we find that higher performance firmsinspire managers to take large equity stake.Third, from the results of a simultaneous equation system using a2SLS method, which inspecting endogeneity problem of ownership, onlythe incentive alignment effect of managerial ownership is statisticallyproved. The recession results of MER using 2SLS method are consistentwith findings reported in the OLS analysis.Finally, taken both equations together, we conclude that firmperformance and managerial ownership are jointly endogenous.Managerial ownership positively impacts firm performance indicating aninterest-alignment effect; a higher firm performance, on the other hand,inspires larger managerial ownership.