The Effect Of Non-tradable Shares Reform Of Chinese Listed Enterprises On The Firm Performance

In2005, China implemented the reform that made non-tradable share tradable. Non-tradable shareholders hold roughly a two-third majority, and manage firm, while tradable shareholders have little power to affect the decisions made by non-tradable shareholders. Government intended to improve the firms’ performance by enhancing corporate governance of the company by restructuring the ownership structure. To comply with the reform policy, listed companies distributed non-tradable shares to the existing shareholders.This paper aims to find the effect of non-tradable share reform on the firm performance with a focus on the changes in ownership structure. It conducted a multiple regression analysis towards717firms listed on the Shanghai Stock Exchange between2001and2010. Our results show that non-tradable shares were reduced by more than60%for the firms who completed the reform. State owned shares were also reduced by35.8%in those firms. We also find that reduction of non-tradable share has a positive effect on the firm performance. Moreover, it is expected that the reform must be made to raise the involvement of other investors, such as non-government institutional investors.