The Effect of Ownership Structure on Corporate Performance

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The Effect of Ownership Structure on

Corporate Performance

---Evidence from China’s Listed Firms 2003-2011

Master Thesis Lu Fang S1739794

MSc International Financial Management MSc Business and Economics Faculty of Economics and Business Faculty of Social Science

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Abstract:

This paper investigates the effect of ownership structure on corporate performance in China’s listed firms. Ownership structure is measured from five aspects in this study: ownership concentration, management ownership, sharing control among blockholders, divergence between cash flow rights and voting rights of the ultimate controller, and ultimate controller identity (the central government, the local government, and the non-government controllers). Corporate performance is measured by both the accounting profit rate and the market-to-book value. The empirical results show that ownership concentration, management ownership, the counterbalance power from other blockholders compared to the largest shareholder, the ratio of cash flow rights to the voting rights of the ultimate controller, and the ultimate controllers’ identity do have significant influences on corporate performance. Some of these influences differ with each other when corporate performances are valued by the accounting profit ratio and the market-to-book value.

Key Words:

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1 Introduction

The relationship between ownership structure and corporate performance is an important subject in corporate governance and corporate finance studies. The literature can be retrospect to Berle and Means (1932), with their book named Modern

Corporation and Private Property. As the earliest famous academic composition in

this field, the authors recognize the trend of ownership dispersion in modern corporations in the US, and find a divert relationship between ownership diffuseness and corporate performance. Separation of ownership and control is considered as one of the main characteristics in modern corporations (Adam Smith, 1776; Berle and Means, 1932; Jensen and Meckling, 1976; Fama and Jensen, 1983; etcetera.). Later scholars have developed the research on the relationship between ownership structure and corporate performance. Especially, Demsetz (1983) challenges the standpoint of Berle and Means (1932) with the view that ownership structure is endogenous, which is the reflection of shareholders’ decision and is the result of share market trading. Demsetz (1983)’s endogeneity hypothesis has been verified by some later studies, such as Demsetz and Lehn (1985), Himmelberg et al (1999), Holderness et al (1999), and Demsetz &Villalonga (2001), etcetera. However, some studies such as McConnell & Servaes (1990) find that ownership structure is not endogenous. Some other studies following Berle and Means (1932)’s work ignore the endogeneity issue. For example, Morck et al (1988) and Han & Suk (1998) find significant influences of ownership structure on corporate performance by their empirical evidences, which do not consider the endogeneity issue. Leaving out the endogeneity issue, the studies on the influence of ownership structure on corporate performance are still manifold, as the empirical relationships turn out to be positive, negative or non- monotonic. In other words, these studies do not reach a consensus conclusion, for samples from different countries, industries, time periods, dimensions of ownership structure, or/and measurements of corporate performance. This paper only focuses on the effect of ownership structure on corporate performance in China, so the endogeneity issue will not be tested in the main models, but it will be checked in the robustness tests.

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caused by separation of ownership and control. Since the large shareholders and the managers have the actual decision making and acting power, the shareholders who do not have the controlling power may be represented and exploited. This is called the agency problem (or the agency-principal problem) when it is between managers and shareholders; it is called the principal-principal problem when it is between large shareholders and minority shareholders. However, in another way, these controllers or decision makers also have the motivation to enhance corporate performance when their interest is aligned with the corporations. The blockholders have more incentive to enhance corporate performance when they own more shares of the corporations, which bind their profit with the performance of the corporations more solidly. They can offer their own extra information, resources or relationships, which are not owned by the corporations. They also have more incentive in monitoring managers’ behavior. In a similar way, an appropriate level of management shareholding can also align the interests between managers and shareholders, which mitigates the agency problem. The traditional empirical studies on the effect of ownership structure on corporate performance usually focus on the effect of ownership concentration or the effect of management ownership. As mentioned by Demsetz and Villalonga (2001), some studies are based on the fraction of shares owned by a firm’s most significant shareholders, such as Demsetz and Lehn (1985), which has the most attention on the five largest shareholders; while some studies came after Demsetz and Lehn (1985) focus on the fraction of shares owned by a firm’s management, which include shares owned by members of corporate board, the CEO, and top management. Many later studies tested for both the effects of ownership concentration and management ownership on corporate performance. Some of them also investigate the influence of the other factors of ownership structure on corporate performance. For example, sharing control by blockholders can influence corporate performance as suggested by some studies such as Gomes & Novaes (2005). Besides, the controlling shareholders typically have control over firms considerably in excess of their cash flow rights, as they often control large firms through pyramidal structures, which cause the problem of separation of ownership and control but not the one described by Berle and Means (La Porta, 1999). Thomsen and Pedersen (2003) propose that an appropriate measure of ownership structure must include not only the distribution of ownership shares (i.e., ownership concentration), but also the identities of the relevant owners.

Building upon the former empirical works, this study examines the effect of ownership structure from five aspects. Besides ownership concentration and management ownership, the other three possible influential factors included in this study are: sharing control among large shareholders, Divergence between ultimate controller’s cash flow rights and voting rights, and ultimate controller identity.

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Commission (CSRC) was established in 1992, and it ensures the order of the securities and futures markets, according to relevant laws and regulations. Thus, the study on listed companies in China has a short history in comparison with the studies in the developed markets. The privatization of Chinese state-owned enterprises is considered as a partial privatization, since the government still maintain a large part of ownership. The government ownership is maintained through state-owned shares and institutional shares, while these two types of shares are both non-tradable shares before the Non-tradable Share Reform. The non-tradable shares issued by China’s listed companies have the same voting rights as the tradable shares, but cannot be publicly traded in the stock markets as tradable shares (non-tradable shares can only be transferred through the out-market auctions or other methods which is different from the tradable shares). Launched in 2005, China started the Non-tradable Share Reform process, and gradually transfers the non-tradable shares into tradable shares. By the end of 2011, the majority of the firms have finished the Non-tradable Share Reform. As the largest economic entity in Asia, China has its own financial market development history, institutional environment, regulations, and culture background. Thus, it is interesting to know how ownership structure influences corporate performance, using the evidence from China’s listed firms.

The main research question of this study is:

What is the influence of ownership structure on corporate performance in Chinese listed firms?

The effect of ownership structure on corporate performance is examined from five perspectives in this study, so the sub-questions for the research are presented as follows:

1. What is the influence of ownership concentration on corporate performance? 2. What is the influence of management ownership on corporate performance? 3. How does the counterbalance power from other blockholders to the top largest

shareholder influence corporate performance?

4. How does the divergence between cash flow rights and control rights of the ultimate controller influence corporate performance?

5. How does the ultimate controller identity influence corporate performance?

To answer the five sub-questions for the research, literature in the relevant fields are reviewed. Then, five groups of hypotheses are proposed for the sub-questions for the research, and followed by five groups of research models.

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and panel regression results; Section 8 is on the robustness test; Section 9 concludes the paper.

2 Literature Review

2.1 Theoretical Background

2.1.1 Corporate Governance: an Introduction

‘Corporations were originally groups of investors pooling their individual contributions of risk capital to organize and carry on an enterprise. Since they had saved their earnings or gains and had risked them in the undertaking, they were assimilated to the owner of land, who cleared and cultivated it, and sold its products. As the economics of the time went, this was justifiable. They had sacrificed, risked and, to some extent, worked at the development of the product. Presumably, they had done something useful for the community, since it was prepared to pay for the product.’

---Berle and Means (1932) On the basis of the definition of the corporation, some important questions arise. For example, Shleifer and Vishny (1997) present several corporate governance questions: How do the suppliers of finance get managers to return some of the profits to them? How do they make sure that managers do not steal the capital they supply or invest it in bad projects? How do suppliers of finance control managers? These questions indicate that the people who sink the capital need to be assured that they get back the return on this capital, while the corporate governance mechanisms provide this assurance (Shleifer and Vishny, 1997). In other words, corporate governance deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment (Shleifer and Vishny, 1997).

Generating the definitions and descriptions from relevant sources, corporate governance is a concept with a wide extension. Most management issues are involved, such as action plans, internal controls, performance measurement, disclosure and transparency, etcetera. The distributions of both rights and responsibilities of the involving participants (stakeholders) are specified by corporate governance structure, as well as the rules and procedures in decision making and action.

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stakeholders, and the alignment of their interests are essentially involved in corporate governance.

2.1.2 Property Right Theory

Property rights theory, as an independent stream of research with important implications for the theory of the firm, has been stimulated by the pioneering work of Coase, and extended by Alchian, Demsetz, and others (Jensen & Meckling, 1976). From the view of property right theory, the firm is the nexus of a set of contracting relationships among individuals (Jensen & Meckling, 1976). The organization per se is no longer the central focus; rather, individuals are assumed to seek their own interests and to maximize utility subject to the limits established by the existing organizational structure (Furubotn & Pekpvoch 1972).

Account is taken of the fact that more than one pattern of property rights can exist and that profit (or wealth) maximization is not assured (Furubotn & Pekpvoch, 1972). Instead of treating the firm as the unit of analysis and assuming that the owners’ interests are given exclusive attention via the process of profit maximization, the utility maximizing model emphasizes individual adjustment to the economic environment and seeks to explain the behavior of the firm and other institutions by observing individual actions within the organization (Furubotn & Pekpvoch, 1972). What is important for the problems addressed in the view of property rights theory is that specification of individual rights determines how costs and rewards will be allocated among the participants in any organization (Jensen & Meckling, 1976). Since the specification of rights is generally affected through contracting (implicit as well as explicit), individual behavior in organizations, including the behavior of managers, will depend upon the nature of these contracts (Jensen & Meckling, 1976). An important insight of property rights theory is that different specifications of property rights arise in response to the economic problem of allocating scarce resources, and the prevailing specification of property rights affects economic behaviour and economic outcomes (Coase, 1960; Pejovich, 1982, 1995; Kim and Mahoney, 2005).

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2.1.3 Agency Theory

The agency relationship is defined as: the relation that arises between two (or more) parties when one, designated as the agent, acts for, on behalf of, or as representative for the other, designated the principal, in a particular domain of decision problems (Ross, 1973; Jensen & Meckling, 1976; Eisenhardt, 1989). Generally, whenever one individual (principal) depends on the action of another (agent), an agency relationship arises (Pratt & Zeckhauser, 1985). The agency problem depicts the loss of the principal when the agent pursues its own interest and goals differing from the principal. The agency problem arises whenever – which is almost always – the principal cannot perfectly and costlessly monitor the agent’s action and information (Pratt & Zeckhauser, 1985). Agency costs arise in any situation involving cooperative effort (Jensen & Meckling, 1976).

The origin of the agency theory can traced back to the 1960s and early 1970s, when economists explored risk share among individuals or groups (Eisenhardt, 1989). Eisenhardt (1989) generalized the two problems that agency theory trying to resolve in agency relationships. The first problem is the interest conflict of goals between desires or goals of the principal and agent. The second one is the difficulty and expensive cost for principal to verify what the agent is actually doing. The second problem is related to risk sharing when the two parties have different risk preference (Eisenhardt, 1989).

The agency theory is commonly applied by researchers to explain the conflict and cost of interest between share holders and managers (Dalton et al, 2008). Since the relationship between the stockholders and manager of a corporation fits the definition of a pure agency relationship, it should be no surprise to discover that the issues associated with the ‘separation of ownership and control’ in the modern diffuse ownership corporation are intimately associated with the general problem of agency (Alchian and Demsetz, 1972; Jensen and Meckling, 1976). In the agency relation between shareholders and managers, the central tenet of agency theory is that there is potential for mischief when the interests of owners and managers diverge (Dalton et al, 2008). Three types of agency relationships mostly capture attentions in researches in corporate governance, which are relationships between shareholders and managers, relationship between large shareholders and minority shareholders, and relationship between equity holders and creditors.

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compensation, direct influence by shareholders, the threat of firing and the threat of takeovers (Jensen and Murphy, 1990). Dalton (2008) generalized the three principal approaches that were developed to minimize the agency problem between shareholders and managers, which are the ‘independence’ approach (monitoring from the board), the ‘equity’ approach (shareholding by managers), and the ‘market for corporate control’ (corporate market) approach.

2.2 Ownership Structure Studies

2.2.1 Ownership Concentration: Blockholders – Tunnelling vs.

Propping

A key issue in corporate governance is whether large owners (blockholders) contribute to the solution of agency problems or whether they exacerbate them (Shleifer and Vishny, 1997; Becht et al., 2002; Thomsen et al, 2006). The theory of corporate finance relevant for most countries should focus on the incentives and opportunities of controlling shareholders to both benefit and expropriate the minority shareholders (La Porta, 1999). The relationship between blockholders and minority shareholders is also called the ‘principal-principal’ relationship to distinguish with ‘agency-principal’ relationship between shareholders and managers. Blockholders can expropriate minority shareholders through tunneling (the entrenchment effect of blockholders), which weakens corporate performance. However, blockholders can also provide extra benefits to the corporation by propping, which benefits the minority shareholders. The overall effect of ownership concentration on corporate performance is the mixed result of the two opposing effects.

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without transferring any assets, but through dilutive share issues, minority freeze-outs, insider trading, creeping acquisitions, or other financial transactions that discriminate against minorities. (Johnson et al, 2000). Johnson et al (2000) also conclude that a large part of tunneling is legal in general, and that tunneling is more severe in countries with weak a legal system.

On the contrary of tunnelling, large shareholders also have the incentive to prop up the corporation, when it is in their own interest and also benefits the corporation. Entrepreneurs as the large shareholders sometimes prop up a company that has minority shareholders by transferring their private resources (Friedman et al, 2003). Propping from large shareholders towards the firms is often done clandestinely (Friedman et al, 2003). Friedman et al (2003) point out that propping may be an important part of how firms operate in countries with weak legal environments.

Ownership concentration (large owners) may contribute to the solution of agency problems between shareholders and management (Shleifer and Vishny, 1997). Large shareholders in the corporations with concentrated ownership structures are more likely to provide effective monitoring on managers, in comparison with the shareholders in the corporations with dispersed ownership structures. Effective monitoring from large shareholders reduces the agency cost by the self-interest-perusing behaviours of managers. Compared with the large shareholders, outside investors may lack incentives to monitor because the benefits of monitoring are spread over all minority shareholders, while the monitor bears all of the costs (Grossman and Hart, 1980). Thus, a concentrated ownership structure helps to avoid the free-rider behaviour in monitoring the managers by the shareholders. This monitoring effect of ownership concentration is also beneficial for corporate performance as the propping effect, in opposition to the entrenchment effect of large shareholders. Effective monitoring from large shareholders is considered as one method for ‘management discipline’, while management ownership is considered as one method for ‘management incentive’, which both mitigate the agency problem and enhance corporate performance.

2.2.2 Management (Insider) Ownership: Alignment Effect vs.

Entrenchment Effect

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corporate performance. The alignment effect of management ownership, which is also called management incentive effect, suggests a positive relationship between management shareholding and corporate performance. On the contrary, when management shareholding reaches some level, managers’ entrenchment effect is more severe when management shareholding increases. The owners (shareholders) rely on the board of directors to represent their interests, thus when the board becomes so dominated by the management that their supervisory role becomes ineffective and the executives get to have the final say (Berle & Means, 1932). The entrenchment effect of managers becomes severe when management shareholding is large enough to ensure the managers of their employment and pursue personal interest without endangering their position (Morck et al., 1988). In this way, when insider shareholding is in a dominate position, the entrenchment effect exceeds the alignment effect, the outsider will be more exploited, and corporate performance will be worsen.

2.2.3 Sharing Control among Blockholders

In the corporate control literature, large shareholders are usually assumed to monitor managers on behalf of all shareholders, however, large shareholders often share control in closely held corporations, joint ventures, and public corporations (Gomes & Novaes, 2005). As viewed by a vast literature on corporate law, large shareholders do not monitor each other on behalf of minority shareholders; instead, large shareholders are perceived as decision makers who seek to influence corporate decisions in a way that favours their personal agendas (Gomes & Novaes, 2005). Blockholders play various roles in corporate governance. For example, Wolfenzon & Bennedsen (2000) find that the optimal ownership structure is with several shareholders and force them to form coalitions to obtain control. A coalition internalizes to a larger extent the consequences of its action and takes more efficient actions than would any of its individual members.

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2.2.4 Pyramid Ownership Structure & Divergence between

Cash Flow Rights and Voting Rights

The main issue concerning the role of pyramidal groups is whether they have facilitated firms’ growth by relaxing financial constraints, or whether they have mainly exacerbated agency problems (Bianco & Casavola, 1999). In some corporations, owners build pyramids, whereby they control firms through chains of companies - another form of separating ownership of capital and control (La Porta, 1999). Pyramiding occurs when the controlling shareholder owns one corporation through another which he does not totally own (Faccio & Lang, 2002). Pyramidal structure or holdings through multiple control chains, is considered as the device that give the controlling shareholders control rights excess of their cash flow rights, while the other two devices which have a similar effect are multiple classes of shares (with different voting rights) and cross-shareholdings (La Porta, 1999; Faccio & Lang, 2002). Morck et al (2005) argued that ultimate owners create pyramids to separate control rights from cash flow rights and to capture private benefits of control at the expense of minority shareholders. However, the pyramid ownership structure also has its advantage. For example, the pyramid ownership structure provides a financing advantage in setting up new firms when the pledgeability of cash flows to outside financiers is limited (Almeida and Wolfenzon 2006).

2.2.5 Ultimate

Controller:

Central/Local

Government

Controllers and 7on-Government Controllers

Different types of owners have distinct incentives and goals which influence the preference of interests of the corporations, as well as corporate operating system, control mechanism, and corporate performance, etcetera (La Porta, 1999). Potential owners differ in terms of wealth, costs of capital, competence, preferences for on-the-job consumption, and non-ownership ties to the firm (Thomsen and Pedersen, 2000). These differences affect the way they exercise their ownership rights and therefore have important consequences for firm behaviour and performance (Thomsen and Pedersen, 2003)

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2.3 Empirical Evidence

2.3.1 Ownership Concentration

The empirical studies on the relationship between ownership structure and corporate governance are made in both emerging and developed market countries, locating in different continents. Since the possibility of tunnelling and propping of the controlling shareholder(s) both exist, the empirical studies have reached different results. A summary of the empirical studies on ownership structure and corporate performance is presented in Table 1.

Researchers generally use the largest shareholder’s shareholding proportion or the sum of several top largest shareholders’ shareholding to measure ownership concentration. Some special measurements are used by Minguez-Vera & Martin-Ugedo (2007), who use the sample of Spain’s listed firms. They use the Herfindahl index, Alfa1 (the probability that the major coalition can obtain a majority) to measure blockholders’ voting rights power and equity ownership concentration. Table 1 a summary of empirical studies (1)

Sample Dependent Variable(s) Results (break point) Gedajlovic & Shapio (1998) US, UK, Germany, France & Canada (1986-1991)

ROA U-shape for US and

Germany (3.75% & 6.00%);

No significant relationship in UK, France, & Canada. Claessens & Djankov(1999) Czech (1992-1997) Profitability2; Labour Productivity3 Inverted U-shape (56.69%); (84.83%) Lauterbach & Vaninsky (1999) Israel (1992-1994)

IA/IO4 Non-majority Firms

Perform Better than Majority Firms Xu & Wang (1999) China (1995) MBV;

ROE

Positive; Positive

1

The authors use Alfa as the independent variable on the degree of control, which is measured by the Cubbin–Leech index.

2_{The authors define profitability as gross operating profit over net fixed assets plus inventory.} 3

Labor productivity is defined by the authors as value added per employee, where sector-specific price indices provided by the Czech Statistical Office are used to deflate value-added.

4

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12 Thomsen & Pedersen (2000) EU (1990-1995) MBV; ROA; Sales Growth Inverted U-shape (83%); (60%); (16.67% ,insignificant) Chen (2001) China(1997) Tobin’s Q Negative with Top 1

Largest Shareholding; Positive with Top 10 Largest Shareholding Filatotchev et al

(2001)

Russia (1999) Binary (profit/no profit); Capacity utilization; Labor utilization; Share of barter in sales Negative; Negative; Positive; Negative Pedersen and Thomsen (2003) Continental EU 5 (1992-1995)

Market-to-Book Value Positive

Pivovarsky (2003) Ukraine (1998) Total Factor Productivity;

Material Input Cost per Unit of Revenue; Labor Productivity Positive Negative Positive Miguel et al (2004) Spain (1990-1999)

Market to Book Value Inverted U-shape (87%)

Edwards & Weichenrieder (2004)

Germany (1992)6

MTB Negative with control

right; Positive with cash flow right (only except public-

controlled firms) Kapopoulos &

Lazaretou (2006)

Greece (2000) Tobin’s Q Positive

Minguez-Vera & Martin-Ugedo (2007) Spain (1998-2000) Tobin’s Q Positive

Du & Xiu (2009) China (2001-2004)

Tobin’s Q; ROA Positive for SAMBLG7- controlled firms; Negative for SOELG8- controlled firms; Unclear for private firms.

5

The sample includes companies from Continental Europe countries, including Austria, Belgium, Denmark, Finland, France, Germany, Italy, Netherlands, Norway, Spain and Sweden.

6 _{For a small number of firms which the information was not available for 1991, their data were taken from either}

1990 or 1992. (Edwards & Weichenriede, 2004)

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13 Antoniadis et al (2010) Greece (Banking Sector)(2000-20 04) ROA U-Shape (47.12%) Chen (2012) Scandinavian Countries (2010) ROE Tobin’s Q Positive Negative

2.3.2 Management (Insider) Ownership

Table 2 summaries the empirical studies on the relationship between management ownership and corporate performance. Some studies find a positive relationship between management ownership and corporate performance, because of the management incentive effect. However, in some studies, the relationship turns to negative in some inflexion points. That is because in some level of management shareholding, the entrenchment effect exceeds the alignment effect, and corporate performance worsens with the increment of management shareholding. The overall influence of the two effects is complex, and differs in empirical studies with diversified samples.

Among the diversified results, several studies find a positive relationship, especially the latest ones, while others find more complex results with turning points that the relationship changes in different range of management shareholding. As shown in the table below, US firms attract the most attention compared with other sample countries. These empirical studies using samples of the same country even do not reaches the same results as there sample size or sample period differs.

The empirical studies normally measure ownership shareholding by the sum of managers and directors, while some of the articles also include the study on the effect of CEO shareholding.

Table 2 a summary of empirical studies (2)

Sample Dependent

Variable

Results (break point)

Morck et al (1988) US (1980) Tobin’s Q Cubic (5%, 25%) McConnell &

Servaes (1990)

US (1976) Tobin’s Q Inverted U-shape (49.35%)

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14 Mudambi & Nicosia

(1998)

UK (Financial Service Industry)(1992-1994)

ACROR9 Cubic (11%, 25%)

Han & Suk (1998) US (1988-1992) Stock Return10

Inverted U-Shape (20.92%)

Short & Keasey (1999) UK (1988-1992) VAL 11 ; RSE12 N-Shape (VAL:13.00%, 41.98%) (RSE: 15.58%, 41.84%) Morck et al (2000) Japan (1986) Tobin’s Q;

ROA

Positive;

Positive (insignificant) Chen & Ho (2000) Singapore (1995) Tobin’s Q Negative (insignificant) Chen (2001) China (1997) Tobin’s Q Positive (insignificant) Cui & Mak (2002) US (high R&D firms)

(1996 & 1998)

Tobin’s Q; ROA

U Shape; (51.02%)

Inverted U Shape (93.75%) Davies et al (2005) UK (1995) Tobin’s Q To the power of five (7.01%,

26.0%, 51.4%, 75.7%) Selarka (2005) IND (2001) MBVR U Shape (45.11%) Kapopoulos &

Lazaretou (2006)

Greece (2000) Tobin’s Q Positive

Florackis et al (2009) UK (2000-2004) Tobin’s Q Positive at management ownership levels lower than 15%, no strong inference for intermediate or high level Haldar & Rao (2010) IND (2001-2008) ROA;

ROCE13; Tobin’s Q

Positive; Positive; Positive Konijn et al (2011) US (1996-2001) Tobin’s Q Positive

2.3.3 Sharing Control among Blockholders

Edwards & Weichenriede (2004) use the control rights of the second largest shareholder to value their monitoring effect in management, and find a positive relationship with market-to-book value of companies in Germany. This positive effect is significant in family-controlled, bank-controlled, non-bank-enterprise-controlled, and foreign-controlled companies, and insignificant in public-sector-body-controlled

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Mudambi & Nicosia (1998) used ACROR as the dependent variable in their research. It is the percentage capital appreciation plus the dividend yield over the year, where gross dividends are assumed to be re-invested in the firm’s shares at the end of the month in which they are paid.

10

The authors use geometric average return for firm for the five year period to value stock return.

11

Valuation Ratio (VAL) is measured by market value of equity at the accounting year end, divided by the book value of equity at the accounting year end.

12

Return on shareholders’ equity (RSE) equal to profits attributable to shareholders divided by shareholders’ equity and reserves.

13

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companies. Maury & Pajuste (2005) investigates the effects of having multiple large shareholders on the valuation of firms, using data of Finnish listed firms. They find that a more equal distribution of votes among large blockholders has a positive effect on firm value. Sharing control among block holders has different effects in two conditions as stated by Gomes & Novaes (2005): when investment opportunities are hard for insiders to evaluate, then with only one large shareholder monitoring the firm is efficient, because shared control with several large shareholders creates bargaining problems and disagreement costs which are more likely to destroy profitable opportunities than its effect in preventing bad investments; in contrast, sharing control is efficient if investment opportunities are hard for outsiders to evaluate, when financing requirements are large, and in countries that minority shareholders protection is poor.

Table 3 below shows several empirical studies on the effect of sharing control among blockholders.

Sample Dependent Variable Results Edwards & Weichenriede (2004) Germany (1992)14 MTB Positive

Maury & Pajuste (2005) Finland (1993-2000)

Tobin’s Q Positive

Attig et al.(2008) 8 East Asian and 13Western European countries15 (1995-1997)

Cost of Equity Negative (positive with valuation)

Attig et al(2009) Asian Countries16 (1996)

Tobin’s Q Positive

Konijn et al (2011) US (1996-2001) Tobin’s Q Negative17 Chen (2012) Scandinavia Countries (2010) ROE; Tobin’s Q Positive; Negative

14_{For a small number of firms which the information was not available for 1991, their data were taken from either}

1990 or 1992. (Edwards & Weichenriede, 2004)

15 The authors compile ownership data for a sample of firms from 8 East Asian economies (Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan, and Thailand) used by Claessens et al.(2000), and 13 from Western Europe (Austria, Belgium, Finland, France, Germany, Ireland, Italy, Norway, Portugal, Spain, Sweden, Switzerland, and the U.K.) used by Faccio and Lang (2002).

16_{Attig et al (2009) use data covering firms from nine East Asian countries: Hong Kong, Indonesia, Japan, Korea,}

Malaysia, Philippines, Singapore, Taiwan, and Thailand

17

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2.3.4 Divergence between Cash Flow Rights and Voting Rights

of the Ultimate Controller

The pyramid ownership structure can bring the agency problem by the divergence of cash rights and voting rights, but it can also bring the financial advantage. La Porta et al (1999), Claessens et al (2000), and Faccio and Lang (2002) describe the corporate ownership structure with the divergence between cash flow rights and voting rights, respectively in worldwide countries, in East Asia, and in Western Europe. In their papers, they explain about the pyramid ownership structure, the definitions of voting rights and cash flow rights, and how voting rights can exceed cash flow rights. Some later scholars do empirical studies on the influence of divergence between cash flow rights and control rights on corporate performance in different countries. Table 4a below shows some relevant empirical studies on the divergence of cash flow rights and voting rights with evidences in different countries.

Sample Dependent

Variable

Results

La Porta et al. (1999) Large and Medium Firms from 27 countries (1995 & 1996, a few from 1997))

--- (Descriptive)

Claessens et al.(2000) East Asia (1996) --- (Descriptive) Faccio and Lang (2002) Western Europe

(1996-1999) ---

(Descriptive)

Maury & Pajuste (2005) Finland (1993-2000)

Tobin’s Q Negative

Attig et al.(2008) East Asian and Western European countries18

(1995-1997)

Cost of Equity Positive (negative with valuation)

Attig et al.(2009) Asian Countries19 (1996) Tobin’s Q Negative (insignificant) Bany-Ariffin et al. (2010) Malaysia (2001-2004)

Tobin’s Q Positive with Leverage (Negative with firm

18_{See Footnote 11} 19

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value) Chong (2010) East Aisa20 (1996) Percentage of

Bank Debt

Positive (negative with valuation) Azofra & Santamaria

(2011) Spain’s Commercial Banks (1996-2004) ROA; BERGER21 Positive22; (negative with divergence); Negative; (positive with divergence) Chen (2012) Scandinavia Countries (2010) ROE; Tobin’s Q Negative; Positive

2.3.5 Ultimate Controller Identity: Central Government, Local

Government and 7on-government Controllers

2.3.5.1 Government vs. Non-government Ultimate Controllers

Table 5 shows several articles which analysis the effect of government ownership on corporate performance. Some of them use the state-ownership proportion as the independent variable, and some use the dummy variable state for owner identity. Most of the studies find negative effect of state ownership on corporate performance. That is consistent with the view that state owners have other objective besides value maximization.

Table 5 a summary of empirical studies (5)a

Sample Independent Variables

Results

Xu & Wang (1999) China (1993-1995)

ROA; ROE Negative

Cornett et al (2010) USA (Banks) (1989-2004)

Profitability (ROA)

Negative

Dewenter & Malatesta (2001) Fortune 500 ROS; ROA; All Negative

20_{The sample of Chong (2010)’s study includes companies in East Asia countries from both developed economies}

(Hong Kong, Korea, Singapore, and Taiwan) and emerging economies (Indonesia, Malaysia, Philippines, and Thailand).

21

Azofra & Santamaria (2011) measures performance by ROA and BERGER. BERGER is the costs-to-assets ratio.

22

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18 (1975, 1985, 1995)

ROE

Pedersen & Thomsen (2003) Continental EU23(1992-1995 )

Market-to-Book Value

Negative

Wei & Varela (2003) China (1994-1996)

Tobin’s Q Negative

Lu and Yao (2006) China (Companies affiliated with large business groups)

(2001-2002)

ROA Positive when the firms adopted higher

degrees of diversification Gunasekarage et al (2007) China (2000-2004) Tobin’s Q & MBR (market-to-book ratio) Negative (significant only at high level of state ownership)

Minguez-Vera & Martin-Ugedo (2007)

Spain (1998-2000)

Tobin’s Q Companies perform better when the main shareholder is an individual

Wolf (2008) Worlds’ 50

Largest Oil and Gas Companies (1987-2006) Output efficiency and profitability Negative Li et al. (2009) China (1994-2000) ROA; Tobin’s Q Negative;

Negative (but Positive with 20th Quant) Arocena & Oliveros (2012) Spain

(1994-2002) DEA efficiency measure No significant difference between state-owned enterprises and private counterparts before privatization; Efficiency of newly privatized firms increased significantly after privatization, but private competitors do not in the same period.

23

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Chen (2012) Scandinavia

Countries (2010)

ROE; Tobin’s Q Negative

2.3.5.2 SOEs controlled by Central Government vs. SOEs

controlled by Local Government

Some studies find differences in corporate performance among corporations controlled by different state agencies. Since the state’s ownership is undertaken by different types of agencies in China, Chen et al (2009) suggest these objectives of the agency-types dictate the extent of political intervention and the degree of commercialization of the listed firms they invest in. Table 6 shows the general information for these studies.

Table 6 a summary of empirical studies (5)b Sample Independent Variable(s) Results Chen et al (2009) China (1999-2004) Profitability (ROA; CFOA24; ROS); Productivity (SEMP25; AEMP26) Tobin’s Q

SOECGs27 perform best, SOELG28 are in the middle, SAMBs29and private controlled firms perform worst.

Du & Xiu (2009)

China (2001-2004)

Tobin’s Q; ROA Ownership identity influences the relationship between ownership concentration and performance.

3 Hypothesis Development

A more concentrated ownership structure means that the blockholders actually have more controlling power in decision making. Thus, the possibility of tunnelling and propping effect both increase when ownership structure is more concentrated.

24

CFOA equals to operating cash flows divided by average book value of total assets.

25

SEMP equals to net sales divided by number of employees..

26_{AEMP equals to average book value of total assets divided by number of employees.} 27

SOECGs: state owned enterprises affiliated to the central government.

28

SOELGs: state owned enterprises affiliated to the local government.

29

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According to the agency theory, the entrenchment behaviour of blockholders increases the agency cost between blockholder(s) and minority shareholders. In this way, ownership concentration has a negative effect on corporate performance. To the opposite, when blockholders own larger proportion of shares, they have more incentive to prop up the firm and monitor the managers. In this way, ownership concentration positively affects corporate performance. Since the real effect is normally a mix, the results of formal empirical studies are various. When propping effects exceed tunnelling effects, the influence of ownership concentration on corporate performance is positive; on the opposite way, when tunnelling effects exceed propping effects, the influence is negative; when there is a certain point (or some certain points) of ownership concentration level that changes the overall effect of propping and tunnelling, the influence is non-linear (this study only checks for the U-Shape effect and the Inverted-U-Shape effect for the non-linear relationships, which follows what many other empirical studies do). The hypotheses are proposed as follows:

Group 1:

H10: There is no relation between ownership concentration and corporate

performance.

H11: The impact of ownership concentration on corporate performance is positive.

H12: The impact of ownership concentration on corporate performance is negative.

H13: The impact of ownership concentration on corporate performance is U-shaped.

H14: The impact of ownership concentration on corporate performance is

inverted-U-shaped.

The alignment effects and entrenchment effects suggest opposite influences of management ownership on corporate performance. The alignment effects suggest that management ownership aligns the interest of managers and shareholders, which mitigates agency problems and increases corporate performance. Entrenchment effects of managers indicate that managers with higher ownership levels have more power in decision making and take less risk of losing their position, which suggests that management ownership has a negative effect on corporate performance. Former empirical evidences show that the possible influences can be positive, negative and non-momentum. Thus, the hypotheses for the effect of management ownership and performance are proposed as follows:

Group 2:

H20: There is no relation between management ownership and corporate

performance.

H21: The impact of management ownership on corporate performance is positive.

H22: The impact of management ownership on corporate performance is negative.

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H24: The impact of management ownership on corporate performance is

inverted-U-shaped.

Counterbalance power from other blockholders to the largest shareholder can also influence corporate performance in two opposite ways. When other blockholders can effectively monitor the behavior of the largest shareholder, or when other shareholders can effectively offer good suggestions for decision making, their influence is positive. However, when other blockholders cannot offer effective suggestions, which means they only disturb the decision making process or they only lead to wrong decisions, their counterbalance power increase bargaining costs and risks of taking wrong decision. In that situation, the counterbalance power from other blockholders (to the largest shareholder) worsens corporate performance. The hypotheses are proposed as follows:

Group 3:

H30: There is no relationship between the counterbalance power from other

blockholders (to the top largest shareholder) and firm performance.

H31: The counterbalance power from other blockholders (to the largest shareholder)

has a positive influence on corporate performance.

H32: The counterbalance power from other blockholders (to the largest shareholder)

has a negative influence on corporate performance.

H33: The effect of counterbalance power from other blockholders (to the largest

shareholder) on corporate performance is U-shaped.

H34: The effect of counterbalance power from other blockholders (to the largest

shareholder) on corporate performance is inverted-U-shaped.

Since ‘separation of ownership and control’ brings to the agency problem, divergence between cash flow rights and voting rights of the ultimate controller is supposed to have a negative effect on corporate performance. That is because a high level of divergence between cash flow rights and voting rights indicates that the ultimate controller does not take a loss equal to the controlling voting rights power, when their decision is bad for corporate performance. In other words, the separation of ownership (cash flow rights) and control (voting rights) increases the risk of entrenchment behavior of the ultimate controller, increasing the agency cost and leading to worse corporate performance. However, in another way, a pyramid ownership structure with higher level of divergence between cash flow rights and voting rights offers advantage with financing opportunities, which benefits corporate performance. So the possibilities of a positive influence and a negative influence both exist. Thus, the hypotheses are proposed as follows:

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H40: Divergence between cash flow rights and voting rights dose not influence firm

performance.

H41: Divergence between cash flow rights and voting rights has a negative impact on

firm performance.

H42: Divergence between cash flow rights and voting rights has a positive impact on

firm performance.

Government owners have more incentives other than profit increment. Thus, government-owned corporations are generally supposed to perform worse than non-government-owned corporations. Central-government-owned corporations usually have more financial and policy support, so they are normally supposed to perform better than local-government-owned corporations. This study investigates on the influence of ultimate controllers (not the intermediate owners), and focus on the difference between government and non-government controllers. The institutional owners or corporate owners are ultimately government controlled or non-government controlled. So in this paper, it only distinguishes government controllers and non-government controllers for ultimate controller identity. Since the Central and the Local State-Owned Assets Supervision and Administration Commissions (SASAC) are the agencies which the government authorized to manage the SOEs, the government controlled corporations are further grouped into the ones controlled by the central government (managed by central SASAC) and the ones controlled by the local governments (managed by local SASACs). The hypotheses are proposed as follows:

Group 5:

H50: There is no difference in performance, between firms controlled by

government-owners and firms controlled by non-government-owners

H51: Government-owned firms perform worse than non-government-owned firms

H50a: Among government-owned firms, there is no difference in performance, between

firms owned by central government and firms owned by local governments.

H51a: Among government-owned firms, those controlled by central government

perform better than those controlled by local governments.

4 Methodology and Models

4.1 Dependent Variables

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are commonly used in empirical studies to value corporate performance. The two measurements generally differ in two aspects: one is the time perspective - the accounting profit rate is backward-looking while the market-to-book value is forward-looking; the second difference is in that who is actually measuring performance (Demsetz and Villalonga 2001). For the accounting profit rate, this is the accountant constrained by standards set by his profession. For Tobin’s Q, this is primarily he community of investors constrained by their acumen, optimism, or pessimism (Demsetz and Villalonga 2001). Demsetz and Villalonga (2001) also noted that in comparison, accounting profit rate is not affected by the psychology of investors, while Tobin’s Q is buffeted by investor psychology pertaining to forecasts of a multitude of world events that include the outcomes of present business strategies. Thus, this study includes empirical analysis with both of the two measurements of corporate performance.

NROA is a widely used indicator to measure corporate performance as an accounting profit ratio in empirical studies. Net Return on Assets (NROA) is calculated as net income divided by total assets.

Tobin’s Q is devised by James Tobin of Yale University, Nobel laureate in economics, who hypothesized that the total combined market value of all the companies on the stock market should be about equal to their replacement costs.30 Tobin’s Q is the ratio of the market value of a company to its replacement value.

I calculate Tobin’s Q with readily-available balance sheet information, generally using the method introduced by Chung and Pruitt (1994). They compared their calculation for approximate Q with Tobin’s Q, and found that at least 96.6% of the variability of Tobin’s Q is explained by approximate Q (Chung & Chung, 1994). The equation below is Chung and Chung (1994)’s formula to approximate Tobin’s Q:

Approximate Tobinᇱ_{s Q =} MVE + PS + DEBT TA

MVE = Share Price × Number of Common Stock Shares Outstanding PS = Liquidating Value of the ϐirmᇱ_{s outstanding preferred Stock}

DEBT = the Value of Firmᇱ_{s Short term Liabilities − Firm}ᇱ_{s Short Term Assets +} Book Value of the Firmᇱ_{s Long term Debt}

TA = Book Value of Total Assets of the Firm

However, there are some differences between the Tobin’s Q measured in this study and Chung and Pruitt (1994)’s. Firstly, there are no preferred stocks issuing in China. The reason is that there are no definite rules or regulations in the Chinese Company

30

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Law and the Chinese Security Law about issuing preferred stocks31, although there is a possibility in future to adopt a preferred stock structure according to the laws. Secondly, non-tradable shares is an important part of total shares in listed companies in China, which is not included in Chung and Pruitt (1994)’s formula because it is a special issue for China. For Chinese companies with both tradable and non-tradable shares, the market share value is the total value of tradable and non-tradable share value in the market. Although non-tradable shares have equal voting rights as tradable shares, they do not account for the same value. Since the non-tradable share does not have the right to circulate in the market, its value is much lower than that of the tradable share. The market value of one non-tradable share is valued as equal to the equity per share of the firm, because it is the normal price of the non-tradable shares in off-market transactions and in calculating the compensation price to tradable shareholders in the Non-tradable Share Reform in China.

Thirdly, since Tobin’s Q is used to measure the market to book value of a company in this study, the numerator and the denominator should be the market value and the book value respectively of the same assets. Since the minority interest is excluded in numerator, I exclude minority interest in the denominator to make the market value and book value measure for the same assets. In this way, Tobin’s Q is calculated to represent the approximation of the market-to-book value of the total assets of the company (parent company only).

When calculating the market value of debt, this study simply use the book value of debt which is the sum of long-term and short-term liabilities, because short-term assets is part of company’s total value when we consider the market-to-book value as the indicator of market expectation of future performance of the firm. Chung and Pruitt (1994) deduct short-term assets from total debt because they consider short-term assets as not been invested and returnable. There are some other studies which measure this part as total debt minus cash and cash equivalents for the same reason. In this study, the market value of debt is valued as its book value, because this research uses Tobin’s Q as an indicator of firm performance showing market expectation of company performance in future. The formula is shown below:

Tobinᇱ_{s Q =}

(year end stock price ∗ number of tradable shares outstanding +enquity per share ∗ nontrdable shares

+long term and short term debt)

(total assets −minority interest) ൙ 31

Information can be consulted from the report in China Securities Regulatory Commission’s website

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4.2 Independent Variables

4.2.1 The Top Largest Shareholder’s Shareholding Proportion

(TOP1)

To examine the effect of ownership concentration on corporate performance, the influence of the top largest shareholder is important, since the top largest shareholder has the strongest power in decision making and this power increases with the increment of the top largest shareholder’s shareholding proportion. Thus, top largest shareholders’ shareholding proportion is the first adopted independent variable in regressions in Model Group 1. According to the theories, there are two opposite effects of ownership concentration (tunnelling and propping), and the empirical studies also find diversified results, so the square of top 1 largest shareholder’s shareholding proportion will also be included in the second regression model in Model Group 2.

4.2.2 Herfindahl Index (HI)

Herfindahl Indexes are also used to measure ownership concentration, as well as the variable TOP1. Since the influences of ownership concentration do not only include the top largest shareholder’s power, the largest shareholders’ voting power in total should also be taken into consideration. While TOP1 only measures the top1 largest shareholder’s shareholding proportion, Herfindahl Indexes measure the total power of several largest shareholders, with weighted sums of shareholding proportion of several largest shareholders. Since other largest shareholders have weaker powers in decision making in comparison with the top largest shareholder, the sum of the squares of each largest shareholder’s shareholding proportion is valued as the Herfindahl Indexes to measure the general power of top largest shareholders. Some other empirical studies also use Herfindahl Indexes to value ownership concentration, such as Demsetz and Villalonga (2001), Minguez-Vera and Martin-Ugedo (2007), etc. Herfindahl Indexes are adopted, but not the sums of several largest shareholders’ proportions, because the Herfindahl Index can better reflect the distribution of the shareholding proportions among the largest shareholders. HI3 and HI5 represent for the Herfindahl Index for the top 3 and the top 5 largest shareholders respectively.

4.2.3 Management Ownership (MO)

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actual power in decision making. Because senior managers, board directors and members of the supervision board are all insiders who have actual powers and influences in decision making, their ownership will all accounted as management ownership (or in other words, insider ownership). The independent variable MO equals to the sum of the shareholding proportion of senior managers, board directors and members of the supervision board.

4.2.4 Counterbalance from other Blockholders (CB)

To measure the counterbalance power from other blockholders (other than the top largest shareholder) who shares the control power, three independent variables are adopted which are CB2, CB3, and CB5. CB2 is the counterbalance power from the second largest shareholder. In the same way, CB3 is the counterbalance power from the second and third largest shareholder. CB5 is the counterbalance power from the second to fifth largest shareholders. They are all calculated by the (sum of) shareholding proportion(s) of other largest shareholder(s) compared with the shareholding proportion of the top largest shareholder.

4.2.5 Ratio of Cash Flow Rights to Voting Rights of Ultimate

Controller (RCFV)

According to the agency theory, the separation of ownership and control is the main problem which brings agency costs. Divergence of cash flow rights and voting rights values the level of separation of ownership and control power of the ultimate controller. The dependent variable RCFV represents for the ratio of cash flow rights to voting rights. The range of RCFV is (0, 1]. When RCFV is 1, there is no divergence between the cash flow rights and the voting rights of the ultimate controller. When RCFV is lower, the divergence level is higher.

The cash flow right is calculated by the proportion of shares owned by the ultimate controller. The first step is to calculate the ownership proportion controlled through each chain by the product of ownership proportions in every tier in the chain; and the second step is to sum up all the products in every control chain.

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4.2.6 Government (GOV) Owned Corporations and Central

Government (CGOV) Owned Corporations

To examine if there is a difference in corporate performance between the government owned corporations and the non-government owned corporations, a dummy variable GOV is adopted. GOV equals 1 when the ultimate controller is the government, no matter it’s the central governmentor the local government. Similarly, another dummy variable CGOV is adopted to differentiate the corporations controlled by the central government and the corporations controlled by the local governments. CGOV equals 1 when the ultimate controller is the central government, and equals 0 when the ultimate controller is the local government. The non-government controlled corporations are not valued with CGOV, since GOV already tested for the influence of government ownership in general. In other words, regression models with CGOV only include corporations that are government owned.

4.3 Control Variables

This study introduces some control variables in the regression equations for the consideration of other factors that possibly affect corporate performance.

4.3.1 Company Size (SIZE)

Company Size, as one control variable, is shortly named as SIZE in the models. It shows the scale of the company and is commonly calculated by natural logarithm of Total Assets. In this way, in this study, the control variable Company Size is calculated by the formula: Company Size = ln (Total Assets)

Total Assets of the company refers to the sum of current and long-term assets owned by the company. In other words, it represents the total amount of value owned by the company which can be converted into cash.

4.3.2 Growth of Company (GROW)

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4.3.3 Leverage: Debt Asset Ratio (LEV)

The Debt Asset Ratio (LEV) refers to the proportion of debt in total assets, and it represents the leverage level the company. The Debt Asset Ratio shows the effectiveness in usage of capital and level of financial risk, which have great influence on company’s performance.

4.3.4 Age of the Listed Company since IPO (AIPO)

Age of the listed company, since the year of initial public offering, is also controlled in the regressions. Many empirical studies on privatization show that public listing has influence on corporate performance, and the influence changes over time.

4.3.5 Industry Dummy Variable (I7D)

Different industries have their specialities and are differed in the level of competition, which influence the relationship between ownership structure and corporate performance. The factor of concentration is higher in the public-service industries: communications, transportation and public utilities (Berle and Means, 1932). There are several standards to classify companies into industries, which some are classified by the resources and material, and some are classified by the products and consumption. In this study, the sample companies are classified by CSRC industry classification, which is formulated by the China Security Regulatory Commission (CSRC). There are thirteen main industry sectors in CSRC industry classification (Version 1999), with further classifications for sub-sectors. In this study, the companies are classified by the main industry sectors of their main business according to CSRC industry classification. Since companies in financial industry are excluded in the sample, twelve dummy variables are set which standing for the twelve main industry sectors. The value of the industry dummy variables shows whether the company is in this industry sector or not. The dummy variable equals 1 when the company is in the industry sector, and equals 0 otherwise.

4.4 Summary of Variables

Table 7 Summary of Descriptions and Measurements of Variables

Variable Description Measurement

Dependent Variables

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TobinQ Tobin’s Q: The Ratio

between the Market Value and the Replacement Value of the Firm’s Total Assets

The numerator is the sum of market value of tradable shares (year-end stock price multiply by tradable shares), non-tradable shares (equity per share multiply by non-tradable shares), and total debt; the denominator is total assets

Independent Variables

TOP1 Shareholding Proportion

of the Top Largest Shareholder

Number of shares owned by the largest shareholder divided by total shares

TOP1^2 Square of Shareholding

Proportion of the Top Largest Shareholder

Square of the top1 largest shareholder’s shareholding proportion

HI3 Herfindahl3: Herfindah Index of the Top 3 Shareholders

Sum of squares of the top 3 largest shareholders’ shareholding proportions

HI5 Herfindahl5: Herfindah Index of the Top 5 Shareholders

Sum of squares of the top 5 largest shareholders’ shareholding proportions

MO Management (Insider)

Ownership

Sum of shareholding proportions owned by board directors, supervisory board members, and senior managers

MO^2 Square of the

Management (Insider) Shareholding Proportion (Square of MO)

Square of the sum of shareholding proportions owned by board directors, supervisory board members, and senior managers

CB2 Counterbalance Power

from the 2nd Largest shareholder to the Top 1 Largest Shareholder

The ratio of the 2nd largest shareholder's shareholding proportion to(/) the top largest shareholder's shareholding proportion

from the 2nd and 3rd Largest Shareholders to the Top 1 Largest Shareholder

The ratio of the sum of the shareholding proportions of the 2nd and the 3rd largest shareholders to(/) the shareholding proportion of the top Largest Shareholder

from the 2nd to the 5th Largest Shareholders to (compare with) the Top 1 Largest Shareholder

The ratio of the total shareholding proportion of the 2nd to the 5th largest shareholders to(/) the shareholding proportion of the top largest shareholder

RCFV Cash Flow Rights to Voting

Rights Ratio: When RCFV is Higher , Divergence

Ratio of cash flow rights to voting rights.

The Effect of Ownership Structure on Corporate Performance