Search results

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.

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.

The purpose of this paper is to investigate the phenomenon in China of listed companies propping up their reported earnings through the use of abnormal related‐party sales. It is hypothesised that two factors associated with securities regulation of listed companies in China will distort the market for ownership control and consequently impact on the practice of propping. The first factor is the firm's risk of being classified as a “special treatment” firm and potentially being delisted. The second factor is the proportion of non‐tradable shares retained by a State‐based controlling shareholder from a government allocation.

The hypotheses are modelled and tested using secondary data from 2010 annual reports and a financial database for companies sampled from the top 100 on the Shanghai and Shenzen Stock Exchanges.

Both hypotheses are supported. Abnormal sales (a proxy for propping) are found to be higher for firms whose ROE had fallen to a level that potentially put them under “special treatment” scrutiny, and also are higher for firms whose proportion of non‐tradeable shares had declined.

Prior studies on propping have focused on companies faced with moderate financial shock being propped up by controlling shareholders so as to preserve their future opportunities to tunnel funds away from minority shareholders. Not previously investigated are the potential side effects of securities regulations on controlling shareholders' incentive for propping, namely, the identification that propping relates to the level of ROE needed to avoid “special treatment” status and the proportion of non‐tradable shares needed as a buffer in the market for corporate control.

China is in the midst of an aggressive privatisation process in which key state‐owned enterprises have already tapped, or have plans to tap, international capital through initial public offerings in Hong Kong. Aims to critically assess two major SOE bank IPOs, the Bank of Communications and China Construction Bank offerings of June and October 2005, respectively, in an attempt to shed light on the evolving share ownership structure of China's leading SOEs especially the extent of capital injections from “foreign” (i.e. non‐Mainland) entities.

The objectives of this paper are pursued, as noted above, through detailed analysis of recent ownership change in two highly topical and major SOE bank cases.

The forms and mechanisms for recent “foreign” capital injection are outlined – in terms of both the private equity and IPO capital injection routes – as well as recent initiatives, in a number of SOEs, to convert non‐tradable PRC stock holdings into tradable holdings. Recent cases suggest that foreign equity fusion is taking place at an unprecedented pace and scale, and is fostered by recent innovations like “unlisted foreign shares”.

Only time will tell whether the evolving ownership patterns of China's leading SOEs result in the kind of governance and performance benefits that are eagerly anticipated. As this process of ownership is ongoing, and in some senses still in its early stages, much research will be necessary in the future to confirm whether the expectations of foreign investors and the SOEs themselves are likely to be met.

The case analysis of the evolving equity structure of SOE banks presented here provides useful background for those wishing to evaluate the merits of other SOE banks that are in the midst of IPO preparations, especially in light of the key vetting role played by the introduction of new stake holders.

In sum, this paper provides key insights on how a unique equity model is being transformed such that SOE stakeholders are rapidly, in many cases, seeking ways to share and diversify ownership risk. This paper sheds light on the mechanisms for doing so by reverting to real and highly topical examples with the SOE bank sector.

This study aims to investigate the relationship between the ownership structure of firms and the private benefits of control through an analysis of Chinese listed firms.

Using a sample of Chinese firms, cases were examined where there had been a transaction involving non‐tradable stock. The cases where there had been stock transactions which both did and did not involve the transfer of control within a single year were selected. The difference between these two types of transaction was used to estimate the private benefits of control in Chinese listed firms. Regression analysis was used to explore the relationship between ownership structure and private benefits of control in Chinese listed firms.

The results show that the average private benefit of control is 18.52 percent in China. The regression results show a significant, positive relationship between the controlling shareholders, the combined shareholdings of the second to fifth largest shareholder and private benefits of control. However, there is a negative but insignificant relationship between the tradable share value and private benefits of control. With regard to the relationship between managerial shareholding and private benefits of control, the regression results show a positive but insignificant relationship.

Further insights into the private benefits of control can be obtained by inspecting the change around major corporate events involving significant ownership changes. In this study, the focus was on non‐tradable stock. Investigating all stock would be a fruitful area for future research.

In China, firms should optimize the ownership structure and curb expropriation by controlling shareholders. This would help to promote a sound development of Chinese listed firms and the capital market.

The research provides useful information on the impact of ownership structure on private benefits of control in a sample of listed firms in China.

We study institutional investors’ influence on the use of related party transactions (RPTs) in China. We test the significance of potential factors in the cross-sectional regression analysis of the amount of RPTs reported by Chinese listed companies. We also analyze intraday trading activities and stock prices in days around public announcements of RPTs. Our findings suggest that institutional investors do not have a significant influence on Chinese firms’ usage of RPTs but they react to RPT announcements through buying or selling shares.

This paper aims to examine the effects of adding non-tradable sector and trade in intermediate goods sector and their impact on the “Backus-Smith” (BS) puzzle and the features of the non-tradable output. Conventional international real business cycle models show that the real exchange rate and the terms of trade are positively correlated to the relative consumption movement between the home and foreign economies when there is a total factor productivity shock, whereas the correlation in the data is negative. The author develops a two-country, dynamic, stochastic and general equilibrium (DSGE) model with staggered price setting in the non-tradable sector and international trade in intermediate goods sector because of product differentiation in a high-asset market frictions situation.

In this paper, DGSE simulation and calibration are performed using Matlab with Dynare.

When the world economy has positive country-specific productivity shock, the benchmark model with non-tradable sector and intermediate goods sector successfully solves the BS puzzle and is able to match several features of the data. The dynamic responses to productivity shock show that integrating product differentiation is necessary to generate a more volatile and counter-cyclical non-tradable output.

The paper investigates the effects of incorporating non-tradable sector and trade in interemediate goods sector to standard two-country DSGE model through simulation and calibration.

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 examine the market reactions and its determinants of the releasing of restricted non‐tradable shares and to provide some useful information for the coming releasing peak of IPO‐restricted shares in China.

The paper employs event study and empirical analysis.

It was found that the cumulative abnormal return during the releasing windows is significantly negative, and firm quality, agency problems, and the market trading activity play important roles in explaining the negative market relations. This evidence shows that the cumulative abnormal returns during the releasing windows are positively associated with firm performance, assets turnover ratio, assets quality and trading turnover ratio, and are negatively associated with market‐to‐book ratio, financial leverage, the local government or private character of the ultimate ownership controller, and sum of trading on the announcement day.

The paper's value to investors is to show that one should choose firms with good financial position, not controlled by local government or private, and refer to the market trading activity in releasing windows. The paper's value to regulation parties is that they should regulate disclosure quality of financial reports, and avoid arbitrage due to information asymmetry during the releasing process to reduce the negative wealth effects to investors.