Does mixed ownership improve the financial quality of Chinese listed companies? A case study of SXNBM’s privatization process

Abstract

Purpose

The purpose of this paper is to explore financial quality problems, based on the dynamics of the ownership structure, in the privatization process to clarify the internal relation among the ownership’s attribution of the commercial mixed ownership company, the company’s performance and its financial relationships. This paper also examines the mixed ownership enterprise’s potential problems during the development process.

Design/methodology/approach

Adopting the single case study method, the authors selected the mixed ownership public company Hubei Sanxia New Building Materials Co., Ltd. (stock code: 600293) to explore, from a privatization perspective, the impact of mixed ownership on financial quality.

Findings

The study found that Sanxia experienced tight cash flow and heavy debt burdens due to the privatization and that its controlling shareholders used non-operating income to support Sanxia, thus characterizing the dual role of “the grabbing hand” and “the helping hand.” Sanxia’s privatization process highlighted the volatility of performance, the exception of monetary funds and the existence of accounting fraud rather than the prosperous development of the capital combination.

Originality/value

These findings provided case support that privatization negatively affects the financial quality of the company. Previous studies have indicated that there should be greater focus more on the issue that state-owned shares rebound during the process of privatization and that, with respect to commercial mixed ownership reform of state-owned enterprises, such reform must avoid the passive transfer of corporate control, ensure the fairness of the related transactions, prevent the loss of state-owned assets and preclude the controlling shareholders from seizing interests of listed companies.

Citation

Zhou, T. and LI, J. (2017), "Does mixed ownership improve the financial quality of Chinese listed companies? A case study of SXNBM’s privatization process", Nankai Business Review International, Vol. 8 No. 3, pp. 367-388. https://doi.org/10.1108/NBRI-05-2016-0019