Ownership Structure, Corporate Governance And Operating Performance Of Listed Companies

China’s domestic stock market was featured by fragmentation before 2005. There existed two classes of shares, tradable and non-tradable shares. Non-tradable shares accounted for almost two-thirds of all shares of Chinese listed companies. This severely dampened the effectiveness of the corporate governance mechanism. On 29 April 2005, the regulators decided to launch the Non-tradable Shares Reform so as to freely float all the non-tradable shares. The reform, as a landmark in the history of the Chinese stock market, has engendered a significant influence on the corporate governance of listed companies. This study first theoretically analyzes how the fragmented share structure results in distorted shareholder behaviors and dysfunctional corporate governance. Then, a Chinese Corporate Governance Index (CCGI) is constructed to empirically examine whether the reform has significantly improved the overall corporate governance of listed companies. Further, a regression model is developed to specially investigate the relationship between ownership structure and operating performance. Ownership structure is the core of corporate governance and the central component of the Non-tradable Shares Reform. By developing the model, a better understanding will be promoted with regard to how the influence on corporate governance has been passed on to the operating performance of listed companies. Finally, based on the theoretical analysis and empirical findings, policy suggestions are proposed to help deepen the still ongoing Non-tradable Shares Reform.