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 + 6 + 7 + ∑ 7+ + ∑ 15+ + (5) 8 19 =1 =1 OWNit = 0 + 1Tobin ′ sQit + 1 + 2 + 3 + 4 8 19 + 5 + 6 + ∑ 6+ + ∑ 14+ + (6) =1 =1 where OWN is the percentage of ownership of the largest private shareholder in equations (6) and (7). The natural log of remuneration for senior executives (LNDTP), the market status dummy (STATUS), the proportion of shares owned by individual investors (RESUDA), and the regional openness dummy (OPENNESS) are treated as exogenous variables (instruments). We have identified STATUS as the first instrument. Tian and Zhou (2003) and Luo, Wan & Cai (2012) argued that the largest private investors tend to acquire the licenses of businesses that are performing well or sectors they regard as valuable. They also undertake merger and acquisition activities to obtain permits indirectly (Luo et al . , 2012). Local protectionism is strong in China and without a local partner or making a direct investment in a region, enterprises cannot readily sell products in regional markets, especially those operating in highly competitive industries (Tian & Zhou, 2003). Consequently, private firms in these sectors will have high performance but the concentration of ownership will be low due to the expansion of their partnership networks (Tian & Zhou, 2003). For the reasons stated above, we argue that STATUS affects PRIVATE but not Tobin’s Q. 15 The second exogenous variable used is RESUDA, which represents the proportion of shares owned by individual investors. A higher proportion of shares owned by small investors indicates that a relatively lower proportion of stocks is available for the largest shareholder. Therefore, we argue that RESUDA in equation (7) affects PRIVATE, but not Tobin’s Q. 16 15 Our paired correlation results for PRIVATE, TOBIN’s Q, and STATUS show that STATUS is cor- related with Tobin’s Q (0.151) but not with PRIVATE (0.067). 16 Our paired correlation results for PRIVATE, TOBIN’s Q, and RESUDA show that RESUDA is not correlated with Tobin’s Q (-0.056) but highly correlated with PRIVATE (-0.157). The third exogenous variable used in this study is OPENNESS. Wang et al. (2010) argued that the majority of Chinese private listed firms are owned by families who operate typical product manufacturing and export processing businesses. These firms tend to have relatively high levels of ownership concentration and are often gathered in certain regions to form industrial clusters (Shen, 2008; Leng, 2009). Therefore, we have used the proportion of the total value of exports and imports to provincial GDP and ranked them to capture the most export-oriented regions in China. We presume that OPENNESS positively affects PRIVATE but not Tobin’s Q. 17 Finally, we argue that the compensation plans for hired executives have the potential to be based on size and meeting the largest shareholders’ objectives. Based on the above, we argue that LMGP affects PRIVATE but not Tobin’s Q . 18 V. E mpirical R esults a) Effect of Ownership Identity on Firm Performance The results reported in Table IV Panel A show that firms’ financial performance does differ for different types of largest shareholders. For example, the mean (median) ROA for SOECGs as the largest shareholder is 5.60% (5.29%), 5.78% (5.39%) for SOELGs, and 6.79% (6.60%) for PRIVATEs. These results suggest that PRIVATE controlled firms perform better than both SOECGs and SOELGs. These results are statistically significant at a 1% level. The statistical significance of the differences in means (medians) of ROA for different types of the largest shareholder is reported in Table IV, Panel B. The results for ROA reported in Panel A do not support hypothesis H2. That is, SOEs (SOECGs and SOELGs) perform better than the PRIVATE controlled firms. The results for SPROD show that SOELGs perform better than PRIVATEs and SOECGs and also that SOECGs perform better than PRIVATEs. The results of SPROD suggest that listed SOEs have a relatively stronger revenue-generating capacity compared to the PRIVATE controlled firms, thus supporting our hypothesis H1. The results of CFOA suggest that SOELGs and SOECGs have higher cash flow returns 17 Our paired correlation results for PRIVATE, TOBIN’s Q and OPENNESS show that OPENNESS is not correlated with Tobin’s Q (0.002) but highly correlated with PRIVATE (0.146). 18 Our paired correlation results for PRIVATE, TOBIN’s Q and LMGP show that LMGP is not corre- lated with Tobin’s Q (0.042) but highly correlated with PRIVATE (0.138). The Relationship between Ownership Identity, Ownership Concentration, and Firm Performance: Evidence from China 20 Global Journal of Management and Business Research Volume XXII Issue VIII Version I Year 2022 ( ) A © 2022 Global Journals