How State Shareholding Would Affect Company’s Operating Results

State shareholder has been always one of the most important features of China’s public company, and state shareholdings’negative impact on company’s earnings has long been a hot topic among policy makers and scholars. This paper takes China listed companies as a sample, and uses ROE (return on equity) and Tobin’s Q as indicators of the quality of company’s operation to measure how state shareholding would affect company’s operation results. The paper also takes different levels’ government control, including majority shareholding, relatively shareholding, and shareholding participation, as well as different performance between central government’s shareholdings and local government’s shareholdings, and state shareholdings’performance in different industry. The empirical results show that overall, state shareholdings have negative impact on companies’operation results, and the negative impact will increase as government has more control into a company. Additionally, in terms of difference between central government and local government, central government’s existing in a company has more negative impact on company’s operation results. What’s more, in terms of different industry, in industries which offer a more market driven competition environment for companies, state shareholding turns to have more significant negative impact on company’s operation results, while in industries which offer a less market driven competition environment, state shareholding’s negative impact on company turns out to be less significant. The results offer some advices for state-own enterprise reform. First of all, government should try its best to offer a more market driven competition environment for those enterprise, so that the advantages of private sector can be better facilitated. Secondly, government should weaken its presence in those state owned companies, and absorb more private shareholdings into it as private shareholdings have more positive impact on company’s operation results according to this research. Last but not least, although government shareholdings have negative impact on company’s results on overall basis, we still need to admit that in some companies, state shareholdings do have some positive impact, especially when the percentage of shareholding was less than 25%.