Governance and performance in China’s real estate sector

Abstract

Purpose

The purpose of this paper is to link literature on China’s real estate sector and the impact of governance, ownership and political connectedness on firm financial performance. Whether these factors impact listed real estate firms differently to firms in other industry sectors is identified.

Design/methodology/approach

The paper uses pooled 2008-2013 data on A-share firms. Tobin’s Q captures firm financial performance. Explanatory variables include corporate governance, ownership, local government political connectedness, accounting data and ultimate control. Two-way interactions are estimated between real estate and ownership, governance, political connectedness and other variables. Three-way interactions are estimated between real estate, ownership, control and political connectedness. Year and industry fixed effects are absorbed.

Findings

Industry concentration and proportion of state ownership appear to positively impact performance. Firm size, gearing and greater foreign ownership appear to negatively impact performance. However, differences are identified for real estate firms, in which state control and gearing positively impact performance. Greater state and foreign ownership as well as supervisory board size negatively impact performance. Finally, state control in the presence of local government connections negatively impacts performance, while greater state ownership in the presence of local government connections positively impacts performance.

Originality/value

A lack of empirical evidence on the impact of corporate governance, ownership structures and political connectedness on firm performance in China’s real estate sector is addressed. Importantly, relationships among these factors and the financial performance of China’s listed real estate firms differ to those of firms in other industries.

Citation

Xu, L., McIver, R.P., Shan, Y.G. and Wang, X. (2016), "Governance and performance in China’s real estate sector", Managerial Finance, Vol. 42 No. 6, pp. 585-603. https://doi.org/10.1108/MF-01-2015-0010