Comparative Study On The Relationship Between Ownership Concentration,Check-and-balance Ownership Structure With Corporate Performance Before And After The Non-tradable Shares Reform

The ownership structure is the basis of the corporate governance structure, which reflects the company’s risk and benefit distribution mechanisms. It has an impact on corporate governance mechanisms, and thus affects the company’s performance. The definition of ownership structure consists of two dimensions:the qualitative aspect is the nature of different shareholders; the quantitative aspect is the ownership concentration or dispersion. This paper, standing in the quantitative dimension of the ownership structure, analyzes how ownership concentration and check-and-balance ownership structure impact on corporate performance.Study on the relation between ownership structure and corporate performance has been a hot issue at home and abroad. Scholars from various countries study on the issue on the basis of their national circumstances. Domestic and international empirical research on the relation between ownership structure and corporate performance or corporate value did not achieve the same conclusion. Different from the Europe and the United States and other developed countries, equity division existed in China’s stock market in the past, which means the shares of listed companies had been artificially separated to tradable shares and non-tradable shares. After the non-tradable shares reform, China’s A-share market can basically achieve all-round circulation, and the listed company’s ownership structure will undergo a significant adjustment. Standing in the perspective of corporate governance, non-tradable shares reform first can reduce transaction costs of ownership and improve the role of external governance. Second, it can reduce ownership concentration. Third, it can reduce interest violation from the largest shareholder toward middle and small shareholders. Visible, non-tradable shares reform generates positive impact on corporate governance by optimizing the ownership structure, and thus also has a positive impact on corporate performance. Therefore, on the basis of previous research, using a combination of research methods of theoretical research and empirical research, this paper studies comparatively on the relationship between ownership concentration and corporate performance, and between check-and-balance ownership structure and corporate performance for the two periods that before and after the non-tradable shares reform, which provide recommendations to the listed companies constructing a reasonable ownership structure in the times of full circulation, and promote the performance of listed companies and long-term healthy development of securities markets.The paper consists of five parts. The first part is introduction which illustrates the research background, research significance, research topic, research methods, as well as contributions and shortcomings.The second part is the literature review. This part summarizes and illustrates foreign research and domestic research separately. The domestic research is also be described respectively before and after non-tradable shares reform. In domestic, there are mainly four types of empirical results of the research on relationship between ownership concentration and corporate performance:inverted U-shaped relationship, U-shaped relationship, a positive correlation and no significant correlation. For the relationship between check-and-balance ownership structure and corporate performance, different from foreign research that generally found a positive correlation between the two variables, although majority of domestic scholars point that check-and-balance ownership structure have a positive impact on corporate performance in theory, the empirical study have not yet reached the same conclusion. Summary and evaluation of previous research get good theoretical preparation for the next part of this paper.The third part is theoretical analysis. This part first introduced the basic theory relevant to the topic, including theory of property rights, the separation of ownership theory, and principal-agent theory. Then the definition of ownership concentration and check-and-balance ownership structure, the origin and the hazards of equity division, and the impact of non-tradable shares reform on corporate governance are described. Then a theoretical analysis on the mechanism of ownership structure on corporate performance are described, which analyzes how internal and external governance mechanisms, including the incentives mechanisms, monitoring mechanisms, mergers and acquisitions, and proxy contests, play a role in different ownership structure and thus affect the company’s performance. Finally put forward my point of view about the relationship between ownership concentration and corporate performance, between check-and-balance ownership structure and corporate performance before and after the non-tradable shares reform according to above theoretical basis.The forth part is the empirical study. According to above theoretical analysis, the paper presents four hypotheses:Hypothesis1, ownership concentration and corporate performance was negatively correlated before the non-tradable shares reform; Hypothesis2, there was inverted U-shaped relationship between check-and-balance ownership structure and corporate performance; Hypothesis3, ownership concentration and corporate performance was positively correlated after the non-tradable shares reform; Hypothesis4, check-and-balance ownership structure and corporate performance was positively correlated after the non-tradable shares reform.This paper selects Shanghai and Shenzhen main board listed companies which complete non-tradable shares reform and achieve full circulation before December31,2009as study samples, and uses its2005and2010data for research. As China also do not have market conditions of application of the Tobin’s Q temporarily, this paper selects the net return on assets (ROE) as dependable variables to measure the performance of listed companies, and ownership concentration (CR) and equity balance degree (Z) as explanatory variables. Ownership concentration is measured by ratio of the largest shareholder, the ratio of the top five shareholders and the ratio of the top ten shareholders respectively. Taking into account that the shares of listed companies in China are mainly concentrated in the top five shareholders, equity balance degree is measured by proportion of the ratio of the second to fifth largest shareholders to the ratio of largest shareholder. The control variables are corporate size (SIZE) and financial leverage (LEV), both of which are important factors for the corporate performance.Finally establish study models based on above hypotheses, and use statistical software SPSS17.0to do the ordinary least squares regression analysis. The results of descriptive statistical analysis of sample data shows that ownership concentration and the equity balance degree has decreased significantly after the non-tradable shares reform, Equity balance degree of the listed companies is still low. Correlation analysis shows that, there is a significant positive correlation between ownership concentration and performance indicator, and between corporate size and performance, and there does not exist a significant correlation between the Equity balance degree and performance indicator. Regression analysis shows that China’s listed companies’ ownership concentration is positively correlated with corporate performance before and after the non-tradable shares reform; there is inverted U-shaped relationship between check-and-balance ownership structure and corporate performance before and after the non-tradable shares reform; corporate size is positively correlated with corporate performance; financial leverage is negatively correlated with corporate performance.The fifth part is conclusion and recommendations. Based on above study, the paper comes to the following conclusion:first, ownership concentration is positively correlated with corporate performance before and after the non-tradable shares reform, which means that appropriate concentration of China’s equity will help improve corporate performance; second, there is inverted U-shaped relationship between check-and-balance ownership structure and corporate performance before and after the non-tradable shares reform, which means that appropriate check-and-balance ownership structure is conducive to the enhancement of corporate performance, however, when the equity balance degree up to a certain extent(the critical value is2.40before the non-tradable shares reform, the critical value is2.37after the non-tradable shares reform), the rise of the equity balance degree will damage corporate performance.With the completion of the non-tradable shares reform and gradual lifting of the ban of restricted shares, based on the above findings, the paper makes the following recommendations in the times of full circulation on how to further improve corporate performance. First, to maintain a certain ownership concentration, at the same time, build a reasonable equity balance degree. In this paper believe that it should be that the largest shareholder was significantly higher than other large shareholders, but slightly less than the sum of the other large shareholders. Second, actively cultivate the public investors, and develop institutional investors. Changing the psychological of "free rider" and speculative ideas of the public shareholders, and developing institutional investors can improve the governance of listed companies. Third, strengthen the institutional construction of the securities market. Specific measures includes further improve the information disclosure system, improve the legal system of investor protection, strengthen the supervision of listed companies, and give full play to the intermediaries.The contribution of this paper is as follows, first, In the past studies, shares of listed companies had not completely lifted, so findings on not strict enough conditions would inevitably be biased. This paper uses data of listed companies achieving full circulation finely avoid this problem. This paper studies topic combing with the situation before and after the non-tradable shares reform, which can analyze whether the non-tradable shares reform impact on the relationship between ownership concentration and corporate performance, and between check-and-balance ownership structure and corporate performance.The shortcomings of this paper are as follows, first, this study uses only the2005and2010data of sample companies. Inadequate study time makes the interpretation of the research results not strong enough. Second, the non-tradable shares reform is carried out by batch. The selection process may lead to a selective bias, so that the empirical results may lack general applicability.