Global Journal of Management and Business Research, A: Administration and Management, Volume 22 Issue 8

context. Song, Zhang, and Li (2004), reported a positive relationship between non-controlling shareholders and firms’ market value using a 3-year sample for the period 1999-2001. However, it is not clear whether this relationship still holds after the numerous institutional changes that have taken place in China since 2004. Therefore, we propose our sixth hypothesis as follows: H6. The presence of non-controlling blockholders in Chinese listed firms has a positive effect on the market value of these firms. Foreign shareholders of Chinese listed firms tend to be financial institutions based in Europe, Hong Kong, Japan, and North America (Chen, Firth & Rui, 2006). Boubakri, Cosset, and Guedhami (2002) and D’Souza, Megginson, and Nash (2002) argued that the presence of foreign shareholders is associated with superior performance by privatized firms. Bai, Liu, Lu, and Song (2004) and Wei et al. (2005) argued that listed firms that have foreign institutional investors as shareholders experience a higher market valuation because of transparent financial disclosure requirements and enhanced monitoring procedures brought by sophisticated foreign investors. Therefore, we propose our seventh hypothesis as follows: H7. The presence of foreign investors in listed firms has a positive effect on their market valuation. IV. D ata and M ethodology a) Sample Selection Data was collected from China’s Stock Market and Accounting Research Database (CSMAR). The initial sample included 1246 firms trading in either of two stock exchanges in China for the period 2005 – 2012. We have taken great care in identifying the major shareholder and the other top 10 shareholders for each listed firm in the sample. To determine the true owner of the shares, we carefully checked the prospectus data of each firm through SINA Finance (http://finance. sina.com.cn/stock ) and the CNINF website (www.cninfo.com.cn ) which is the official disclosure platform for firms in China. By merging these data with the CSI ownership classification scheme developed by China Securities Index Ltd., we finally confirm the real identity of the dominant (or largest) shareholder for each company and have reclassified each according to the different shareholder types: (i) central government- owned SOEs (SOECGs); (ii) local government-owned SOEs (SOELGs); (iii) privately owned firms (PRIVATE), and (iv) ownership unclear (PCHINEXT). However, a number of exclusions apply to the dataset used. First, financial firms and companies for which operating performance data were not available were removed from our dataset. Second, we winsorized firm performance variables using a similar method to that of Wei et al. (2005) and Erkens, Hung, and Matos (2012) 5 However, privately controlled companies listed on ChiNext (China’s growth enterprise market) tend to have three blockholders, although the second holds only about onethird of the shares held by the largest blockholder (the median for the largest shareholder is 32.12%, and for the second 12.86%, respectively). Since the largest shareholder is the controlling shareholder, we adopt the method used by Song et al. (2004) to define the non-controlling blockholders as shareholders ranked from 2 to 10 in the tier of the top 10 shareholders. to remove the effect of outliers in our dataset. Third, because some “shell companies” are traded on China’s stock markets as vehicles for investors’ grey activities, we removed those also to ensure the overall validity of the dataset. Our final sample consists of 13,273 firm-year observations, comprised of 5449 (51.05%) firm-year observations where PRIVATE is the major controlling shareholder, 4911 (36.99%) observations from SOELGs, 2135 (16.09%) observations from SOECGs, and 778 (5.86%) observations from PCHINEXTs. Table I Panel A reports the shareholdings of the three largest shareholders. According to Panel A, the median holding of the largest shareholder is 34.94%, that of the second largest investor is 6.88%, and the third is 2.66%. Since blockholders own 5% or more of a firm’s shares, a typical Chinese firm has only one or two blockholders and the largest shareholder tends to be the dominant one. These results suggest that the single largest shareholder has a major influence on the operations of Chinese listed firms. Our results hold for SOECGs and SOELGs, as well as PRIVATE firms in China. 6 Table I Panel B reports Chinese firms’ ownership structure after the Split Share Structure Reform of 2005. The results reported in Panel B show that by end of 2006, the proportion of state ownership in SOECGs declined by 6.19% (from a mean of 46.82% in 2005 to 40.63% in 2006). Similarly, state holdings in SOELGs declined by 5.42% (from a mean of 43.60% in 2005 to 38.18% in 2006). Although average state Based on the results reported in Panel A, non-controlling shareholders in privately controlled firms own a higher proportion of shares (a mean of 13.54% for PRIVATE and 21.96% for PCHINEXT) compared to state- controlled firms (a mean of 9.19% for SOECG and 9.06% for SOELG). 5 Due to the presence of outliers, we have winsorized ROA and ROS at the 2.5% level in both tails of the distribution and Tobin’s Q at the 2.5% level only at the right tail of the distribution. After receiving anonymous reviewer feedback, we also tried to winsorize at 1%. However, winsorizing at 1% increased the number of outliers so we reverted to winsorizing at 2.5%. 6 According to the studies by Tian (2003), Song et al. (2004) and Chen et al. (2009), the pyramid ownership structure of Chinese listed firms is not significant. The Relationship between Ownership Identity, Ownership Concentration, and Firm Performance: Evidence from China 13 Global Journal of Management and Business Research Volume XXII Issue VIII Version I Year 2022 ( ) A © 2022 Global Journals