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

Tobin ′ s Qit = 0 + 1OWNit + 1 + 2 + 3 + 4 + 5 8 19 + 6 + 7 + ∑ 7+ + ∑ 15+ + (3) =1 =1 OWNit = 0 + 1Tobin ′ sQit + 1 + 2 + 3 + 4 19 8 + 5 + ∑ 5+ + ∑ 24+ + (4) =1 =1 Where OWN is the ownership percentage of the largest shareholder (SOECG or SOELG). The log of remuneration of top-tier executives (LMGP), strategic industry dummy (SID), and total residual state shares, excluding the dominant shareholder’s proportion (RESUDS), are treated as exogenous variables (instruments). The remaining control variables are the same as those used earlier. The 2SLS regression allows us to control for the effect of endogeneity between Q and the largest ownership. Given the dataset, we have identified the remuneration of toptier executives (LMGP), strategic industry dummy (SID), and total residual state shares (RESUDS) as the exogenous variables. According to Wei et al . (2005) and Mattlin (2009), when deciding the level of shares owned by the dominant shareholder in SOEs, the government takes into account whether the firm is in a strategic or pillar industry. Consequently, SID has an effect on Tobin’s Q but not on SOECG . 12 Moreover, through the corporate restructuring process during the early 2000s, the Chinese authorities adopted a debt for equity swap program to reduce the level of SOEs’ bad loans, allowing a certain number of state shares to be held by different state agencies or enterprises rather than by the direct controlling shareholders (Kang & Kim, 2012). Since this type of equity is treated politically as a pledge of future debt repayment, the actual holders of these shares (various state agencies) rarely get involved in the management of these SOEs and seldom attend shareholders’ meetings (Wang, 2003; Leng, 2009). For the reason stated above, we assume that RESUDS will have a positive effect on SOECG as proof of strong political links but these RESUDS will not have any effect on Tobin’s Q. 13 12 We have also undertaken correlation in pairs between SID, Tobin’s Q, SOECG and SOELG. Our results show that the correlation between SID and Tobin’s Q is -0.214, 0.015 between SID and SOECG, and 0.065 between SID and SOELG. These results suggest that SID is correlated with Tobin’s Q but not with SOECG and SOELG. 13 We have also undertaken paired correlation between RESUDS, Tobin’s Q, SOECG and SOELG. Our results show the following correlations: between RESUDS and Tobin’s Q, -0.098; between RESUDS and SOECG, 0.304; between RESUDS and SOELG, 0.446. This result suggests that RESUDS is correlated with SOECG and SOELG but not with Tobin’s Q In addition, the remuneration package of SOE senior management is designed by the state which takes into consideration size and meeting the objectives of the state (Leung & Cheng, 2013) rather than performance. Therefore, we do not expect LMGP to have an effect on firm value. 14 However, the difficulty of disentangling the endogeneity of private ownership structure and firm performance has been widely documented in many studies, using samples from Western countries (Lemmon & Lins, 2003; Beiner, Drobetz, Schmid & Zimmermann, 2006; Bhagat & Bolton, 2008). Since private firms were only officially approved in 2001 to go public, it is unclear whether the same phenomenon also exists in China as well. To test for potential endogeneity in private ownership, we have modified equations (4) and (5) as follows: 14 Our paired correlation results indicate that LMGP is negatively correlated with SOECG and SOELG, that is, for LMGP and SOECG, - 0.162, and for LMGP and SOELG, -0.242. The paired correlation between LMGP and Tobin’s Q is 0.058. These results suggest that LMGP is correlated with SOECG and SOELG but not with Tobin’s Q. The Relationship between Ownership Identity, Ownership Concentration, and Firm Performance: Evidence from China 19 Global Journal of Management and Business Research Volume XXII Issue VIII Version I Year 2022 ( ) A © 2022 Global Journals