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

Where OpPerformit is a set of performance measures described in section 4.2; DSOECG is a dummy variable coded 1 for firm years where the largest shareholder is a SOECG; DSOELG is a dummy variable coded 1 for firm years where the largest shareholder is a SOELG; DPRIVATE is a dummy variable coded 1 for firm years where the largest shareholder is a private investor. The owner-type dummy variable is intended to capture the differences in operating performance between SOECG, SOELG, and PRIVATE controlled firms (PCHINEXT is treated as the omitted ownership type in regression equation (1)). In this study, we have used the natural logarithm of the book value of total assets at the end of the year as a proxy for SIZE. SIZE controls for potential economies of scale or the effect of size. LEV is the ratio of total debts to total assets at the end of the year and captures the underlying capital structure effect. Hutchinson and Gul (2003) argued that firm performance can be influenced by the investment opportunity set it faces. Accordingly, we have used the total assets growth ratio (IORA) as a proxy to control for a firm’s investment opportunity set. Finally, there are significant differences in regional development, and the study controls for the regional effect by using the geo- economic dummy variable DEVELOPI. Following Wei et al. (2005), China is reclassified into two regions based on the average GDP per capita for the period 2005-2012 and the study recognizes the provinces with higher average GDP per capita as the relatively developed regions. 11 11 The cities of Beijing, Shanghai, and Tianjin, and the provinces of Shandong, Jiangsu, Zhejiang and Guangdong belong to the relatively developed regions of China in terms of their higher average GDP per capita over the 8 sampling years. From 2011, some of these regions had a GDP per capita above US$10,000 US and the rest of these provinces’ GDP per capita is close to this standard as well. Hence, DEVELOPI is a dummy variable coded 1 if the company is headquartered in one of these provinces. The results of equation (1) are reported in Table V. Third, we examine whether the proportion of shares owned by the largest investor has the sort of bearing on firms’ financial performance as does their identity. Reddy et al. (2010) argued that the largest owner may better align the incentives of the dominant owner with the interests of the minority investors. However, high percentage ownership may also make it easier to misappropriate assets from the firm (Leng, 2009). To explore the effect of the percentage of ownership, we rerun the equation (1) regression using the following model: OpPerformit = γ 0 + γ 1LOWNit + β 1BLOCKit + β 2PFORit + β 3PBDSHit + β 4LNDTPit + β 5PEXESHit + β 6LNMGPit + β 7SIZEit + β 8LEVit + β 9IORAit + β 10DEVELOPIit + ε it (2) Where OpPerformit is a set of performance measures described in section 4.2. LOWNit is the proportion of shares held by the largest shareholder, that is, SOECG, SOELG, or PRIVATE. SOECG is the proportion of shares held in SOEs by the central government. SOELG is the proportion of shares held in SOEs by the local government. PRIVATE is the proportion of shares in firms held by private investors. We have undertaken regression analysis after controlling for industry and year-fixed effects. The results of equation (2) are reported in Table VI. However, Demsetz and Villalonga (2001) argued that ownership and firm value could be endogenously determined. Since shareholders have an incentive to vary their stock holdings in accordance with their expectations of future performance, the regression results relating to firm performance-dominant shareholders could be spurious. Fourth, to test the potential endogeneity of the performance-ownership relationship, we have undertaken a Two-Stage Least Squares (2SLS) regression. Our model consists of two equations that determine firm performance (Tobin’s Q) and the percentage of shares owned by the largest shareholder (SOECG) in listed central SOEs, simultaneously. The Relationship between Ownership Identity, Ownership Concentration, and Firm Performance: Evidence from China 18 Global Journal of Management and Business Research Volume XXII Issue VIII Version I Year 2022 ( ) A © 2022 Global Journals