From government to corporation: Largest shareholder's change and firm performance (China)

This thesis uses a sample of listed companies in China whose largest shareholders changed from government agencies to corporations during 1997 to 2000 to examine whether change in ownership has an impact on firm performance. The results show that the companies' operating and non-operating performances improved after the change of the largest shareholders. The improvement in operating performance remains significant after controlling for the effects of related party transactions between the listed company and its new largest corporate shareholder's group. In addition, I show that the performance improvement is not a mechanical mean reversal in earnings when compared with a matched sample of firms with similar levels of earnings that retained the government agencies as their largest shareholders. I also find that operating performance improves more significantly and while non-operating performance improvement is less significant when the new corporate shareholder is an enterprise with at least one non-government investor (versus a solely state-owned enterprise), or when there exists another large shareholder that could monitor the new largest shareholder (versus when no such large shareholder exists). Finally, I analyze the components of performance improvements and show that higher sales margin and assets turnover are the main contributors to the improvements in operating performance.