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The existence of controlling shareholders creates a remarkable difference between the corporate governance structures of Chinese firms and those of western firms. Despite the increasing importance of controlling shareholders, it remains disputable whether they are playing the “tunneling” roles or the “governance” roles. Therefore, more research is needed on what roles controlling shareholders are playing and how they play their roles. Previous empirical studies document a common phenomenon that directors play dual roles both on the board and in the top management team. Because of information asymmetry, the board of directors may not be able to perform its supervisory and strategic decision-making functions. Therefore, this paper aims to investigate whether controlling shareholders participate in firm management by appointing the executive directors and examine the economic consequences of controlling shareholder involvement.

In the empirical tests, the authors use the split share structure reform in China as a natural experiment. Using the data from Chinese listed firms between 2001 and 2015 and difference-in-differences analysis, the authors examine the impact of the split share structure reform on the executive directors of controlling shareholders and the governance effect of controlling shareholders’ appointing executive directors to the management.

The authors find that controlling shareholders get involved in firm management by appointing executive directors to strengthen the supervision and incentives of managers. The authors also find that firms exhibit a lower level of earnings management and enhance and higher pay-performance sensitivity after controlling shareholders appoint executive directors to the top management team.

As the natural experiment of the split share structure reform enables us to mitigate endogeneity, the authors investigate the channels through, which controlling shareholders get involved in firm management from the unique perspective of executive director appointment. The study expands the literature on corporate governance and board functions. The findings provide new insights to the effect of controlling shareholder governance and casts light on a new way for controlling shareholders of Chinese firms to participate in firm management – by appointing executive directors.

The purpose of this study is to explain the adjustment rate toward the target capital structure of Chinese nonfinancial listed firms and to investigate the impacts of the split-share reforms (2005–2006) on the capital structure adjustment rate.

The authors control for the unobserved heterogeneity and the fractional nature of the adjustment rate by applying an unbiased dynamic panel fractional estimator on the unbalanced panel data of 27,545 firm-year observations of Chinese nonfinancial firms listed during 1998–2015.

The authors find that Chinese firms adjust at an annual rate of 19–27% to reach their capital structure targets. The authors also find a positive impact of the split-share reforms on the adjustment rates of Chinese nonfinancial firms toward their target capital structure. Split-share reforms also helped Chinese firms to increase the use of equity financing in their capital structure.

The authors argue that the government should strengthen capital markets to enable easy access to more financing options so that Chinese firms can acquire cheaper external financing.

To the best of authors' knowledge, this is the first study that applies an unbiased dynamic panel fractional estimator on an extended data set of 27,545 firm-year observations of Chinese nonfinancial firms listed during 1998–2015.

This paper attempts to explore the interrelationships between the split-share structure reform and privatization processes in light of the interplay between the listing announcements of the non-traditional shares of the Chinese firms within the steel industry and market reaction to these listed shares, as well as to analyze the value gained by the firms due to the privatization processes.

The paper examines market reaction to the listing announcements of non-traditional shares as traditional shares by employing event-study methodology. To determine the success of privatization process and value creation to the firm, the paper utilizes multivariate analysis.

The exogenous factors emphasized in a topographical order, explicitly profitability, efficiency, and leverage, are related to the privatization processes and split-share structure reform that impact the market. The study supports that market reacts positively to the listing announcements of non-traditional shares. Being listed improves value to the firm.

The limitation of this study is the lack of data on country, industry, and firm factors; and this study merely relates to one specific industry and one country.

The paper fills a gap in the literature by articulating the impact of privatization and split-share structure reform on both market reaction and firm value. It focuses on the impact of a dynamic process rather than the impact of a static constituent on market reaction and firm value, as the previous studies have been concentrating on. The research shows that there is an accelerated privatization process of state-owned firms in Chinese steel industry and their integration in capital markets.

The purpose of this paper is to identify the bull and bear regimes in Chinese stock market and empirically analyze the dynamic relation of Chinese stock price-volume pre- and post- the Split Share Structure Reform.

The authors investigate the price-volume relationship in the Chinese stock market before and after the Split Share Structure Reform using Shanghai Composite Index daily data from July 1994 to April 2013. Using a two-state Markov-switching autoregressive model and a modified two-state Markov-switching vector autoregression model, this study identifies bull or bear market and also examine the existence of regime-dependent Granger causality.

Using a two-state Markov-switching autoregressive model, the authors detect structural changes in the market volatility due to the reform, and find evidence of a positive rather than an asymmetric price-volume contemporaneous correlation. There is a strong dynamic Granger causal relation from stock returns to trading volume before and after the reform regardless of the market conditions, but the causal effects of volume on returns are only seen in the bear markets before the reform. The model is robust when using different stock indices and time periods.

The work is different from previous studies in the following aspects: most of the existing empirical literature focus on the well-developed economies, but our interest lies in the emerging Chinese market that has witnessed rapid growth in the past decade; in contrast to many works in the literature that examine the price-volume relationship during one market condition, the authors compare the relationship in a bull market with that in a bear market, using a two-state MS-AR model; the authors also employ a modified two-state Markov-switching vector autoregression model to examine the existence of regime-dependent Granger causality; as the most massive systematic reform for the Chinese stock market since its inception in 2005, the Split Share Structure Reform has a profound impact on the Chinese stock market, thus it is of vital importance to explore its effects on both the price-volume relationship and the market structure.

Proper empirical tests of the effect of blockholders’ monitoring incentives on corporate governance are scant in the literature because the relationship between ownership structure and enforcement of corporate governance mechanisms is bidirectional. This study aims to address the endogeneity issue by examining the effect of blockholding on executive turnover–performance sensitivity, using the split-share-structure (SSS) reform in China as an exogenous shock to blockholders’ monitoring incentives.

This study uses a logit model for estimating the change in executive turnover–performance sensitivity around the SSS reform. Sub-sample analysis is conducted to examine whether the impact of SSS reform on the turnover-performance sensitivity is stronger for firms with more contestable blockholders who might consider stock liquidity, risk sharing and diversification in their monitoring/trading decisions.

Top executive turnover, defined as CEO or board chair turnover, becomes less sensitive to firm operating performance after the reform, mainly for firms with contestable blockholders prior to the reform. Stock liquidity and blockholders’ demand for diversification can explain the impact of contestable blockholding. Moreover, blockholding is sensitive to firm operating performance after the reform but not before it.

With few exceptions, most studies in the blockholding literature focus on the effect of blockholder monitoring on firm value. Examining an exogenous shock to blockholding, this paper provides a set of new evidence for the impact of blockholding on executive turnover–performance sensitivity. The results call for more evidence of the impact of blockholding on executive turnover from other markets.

The purpose of this paper is to investigate the effect of corporate governance and ownership structures on earnings quality in China both prior and subsequent to two important corporate reforms: the code of corporate governance (CCG) in 2002 and the split share structure reform (SSR) in 2005.

This study utilises informativeness of earnings (earnings response coefficient), conditional accounting conservatism and managerial discretionary accruals to assess earnings quality using 12,267 firm-year observations over 11 years from 2000 to 2010. Further, two dummy variables for measuring the changes of CCG and SSR are employed to estimate the effects of CCG and SSR reforms on earnings quality via OLS regression.

This study finds that the promulgation of the CCG in 2002 has had a positive impact, but the SSR reform in 2005 has had little effect on listed firms’ earnings quality in China. These results hold good after controlling for a number of ownership, governance and other variables and estimating models with multiple measures of earnings’ quality.

Future research could focus on how western style corporate governance mechanisms have been constrained by the old management systems and governmental dominated ownership structures in Chinese listed firms. The conclusion is that simply coping Western corporate governance model is not suitable for every country.

The results will assist Chinese regulators in improving reporting quality, ownership structure and governance mechanisms in China. The results will help international investors better understand quality of financial information in China.

This is the first to our knowledge that addresses the effects of major governance and ownership reforms together on accounting earnings quality and, thus, makes a significant contribution on understanding the effect of regulatory reforms on improving earnings quality. In doing so, it also indirectly assesses the effectiveness of western-style corporate governance mechanisms introduced in China.

The purpose of this paper is to provide an updated and critical assessment of the share reforms relevant to Chinese A‐share issuers listed in the two mainland markets of Shanghai and Shenzhen. The reform programme first began in 2005 and has now spread widely across issuers in the two markets. It is therefore timely to assess how effective the reforms have been as well as gauging the ongoing effects of the transformation (of non‐tradable scrip into tradable form) on A‐share prices.

The “Split Share Structure” reform programme represents a major policy initiative in China and potentially opens‐the‐door to large‐scale state‐share disposals. The evidence to date however suggests that the Chinese authorities are primarily concerned with the reconfiguration of the array of share types that presently exist into a more comprehendible, streamlined form. The various checks and balances imposed on controlling shareholders engaged in the transformation of their shares from non‐tradable to tradable form suggest that eventual re‐designation of the holdings into an unfettered tradable type will not necessarily translate to the state's acquiescence in the disposal of such shares. On the contrary, state holdings in the most strategic of assets are likely to be retained more or less intact. Insights are developed by focusing on examples involving major A‐share issuers. In particular, a case study of the Sinopec reform proposal of August/September 2006 is set out to help illuminate the principal features of the reform package. Critical examination of the empirical literature relating to the A‐share price effects of the share reform programme also features.

There is little evidence to date of significant stock disposals amongst the largest and most strategic of China's issuers. However, for a number of A‐listed issuers, parts of the lock‐up moratoria have already expired or are set to do so in the very near future. Given the precipitous fall in A‐share prices (in Shanghai and Shenzhen) since late 2007, largely wrought by the enveloping global credit‐crunch, the Chinese authorities have an even more compelling case than hitherto to assiduously dampen fears of large‐scale state‐share disposals. Notwithstanding this, at least a small part of the drop in A‐share values during 2008 derives from the building risk‐premium on this issue.

As the trading moratoria on re‐designated shares still applies in most cases, at least in respect of the majority of domestic stock holdings, a clearer picture will not emerge until 2009‐2011 when all such moratoria would have lapsed.

The discussions in this paper help to bring into focus a highly topical issue within the context of the Chinese equity market.

We take a state-stewardship view on corporate governance and executive compensation in economies with strong political involvement, where state-appointed managers act as responsible “stewards” rather than “agents” of the state.

We test this view on China and find that Chinese managers are remunerated not for maximizing equity value but for increasing the value of state-owned assets.

Managerial compensation depends on political connections and prestige, and on the firms’ contribution to political goals. These effects were attenuated since the market-oriented governance reform.

Economic reform without reforming the human resources policies at the executive level enables the autocratic state to exert political power on corporate decision making, so as to ensure that firms’ business activities fulfill the state’s political objectives.

As a powerful social elite, the state-steward managers in China have the same interests as the state (the government), namely extracting rents that should adhere to the nation (which stands for the society at large or the collective private citizens).

As China has been a communist country with a single ruling party for decades, the ideas of socialism still have a strong impact on how companies are run. The legitimacy of the elite’s privileged rights over private sectors is central to our question.

Chinese executive compensation stimulates not only the maximization of shareholder value but also the preservation of the state’s interests.

The purpose of this paper is to examine the effects of internal corporate governance mechanisms on the capital structure decisions of Chinese-listed firms.

Using a large and more recent data set consisting of 2,386 Chinese-listed firms over the period from 1998 to 2012, the authors use different statistical methods (OLS, fixed effects and system GMM) to analyse the effects of firm-specific and corporate governance influences on capital structure.

The authors find that the proportion of independent directors and ownership concentration exert significant influence on the level of Chinese long-term debt ratios after controlling for firm-specific determinants and split share reforms. Further analysis separating the sample of this paper into state-owned enterprises (SOEs) and privately owned enterprises (POEs) suggests that ownership concentration in the hands of the state leads to decrease in debt ratios.

The finding implies that concentrated ownership in the hands of the state appears more efficient compared to their private counterparts in their monitoring role.

This paper extends prior literature, which has concentrated disproportionately on firm-specific influences on capital structure, to the effects of within-firm governance mechanisms on capital structure decisions. The paper contributes to the agency theory–capital structure discourse in an emerging country context where corporate governance system appears weak.

The purpose of this paper is to investigate the main determinants of consideration in China's non-tradable shares reform. The primary objective is to dig into the institutional factors that affect consideration in China's non-tradable shares reform.

The authors examine a sample of 846 state-owned enterprises (SOEs) that have finished the non-tradable shares reform during 2005-2009. Using the multiple liner regression, the authors discuss the important factors which affect consideration.

The authors find that ownership reconstruction form and capital occupation are very important determinants of consideration. The main factor which affects controlling shareholders’ capital occupation is the form of ownership reconstruction. Capital occupation of incompletely ownership reconstructed companies is more serious than those of complete ownership reconstructed companies. Furthermore, companies of incomplete ownership reconstruction and higher capital occupation paid higher consideration as a compensation for the expropriation of tradable shareholders’ benefit during the shares split period.

This study provides not only a deeper understanding of the reform of non-tradable shares but also an important empirical reference for reform of SOEs in China.