Corporate governance and firm efficiency : evidence from China's publicly listed firms

Chen LIN, Yue MA, Dongwei SU

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

61 Citations (Scopus)

Abstract

This paper applies a two-stage, double bootstrapping data envelope analysis approach to investigate whether and to what extent various distinctive corporate governance practices affect productive efficiency in a sample of 461 publicly listed manufacturing firms in China between 1999 and 2002. We find that firm efficiency is negatively related to state ownership while positively related to public and employee share ownership. In addition, the relationship between ownership concentration and firm efficiency is U-shaped, indicating the presence of tunneling activities by the largest shareholder. Among three types of controlling shareholder, state exerts the most negative impact on firm efficiency, followed by state-owned legal entities. These results provide strong evidence that political interferences have reduced firm efficiency. It shows that the proportion of outside directors and the number of board meetings are positively associated with firm efficiency, suggesting that board of directors can be an effective internal governance mechanism. Furthermore, provincial market development, a proxy for the strength of external governance mechanism, is positively related to firm efficiency. Overall, our findings illustrate that restructuring state-owned enterprises via improvements in corporate governance has enhanced firm efficiency, but partial privatization without transfer of ownership and control from the state to the public remains a major source of inefficiency in corporate China.
Original languageEnglish
Pages (from-to)193-209
Number of pages17
JournalManagerial and Decision Economics
Volume30
Issue number3
DOIs
Publication statusPublished - 1 Apr 2009

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Shareholders
Privatization
Corporate governance
Firm efficiency
China
Personnel
Industry
Governance mechanisms
State-owned enterprises
Interference
Controlling shareholders
Market development
Employee share ownership
State ownership
Proportion
Inefficiency
Ownership concentration
Partial privatization
Board of directors
Internal governance

Cite this

LIN, Chen ; MA, Yue ; SU, Dongwei. / Corporate governance and firm efficiency : evidence from China's publicly listed firms. In: Managerial and Decision Economics. 2009 ; Vol. 30, No. 3. pp. 193-209.
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Corporate governance and firm efficiency : evidence from China's publicly listed firms. / LIN, Chen; MA, Yue; SU, Dongwei.

In: Managerial and Decision Economics, Vol. 30, No. 3, 01.04.2009, p. 193-209.

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

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AB - This paper applies a two-stage, double bootstrapping data envelope analysis approach to investigate whether and to what extent various distinctive corporate governance practices affect productive efficiency in a sample of 461 publicly listed manufacturing firms in China between 1999 and 2002. We find that firm efficiency is negatively related to state ownership while positively related to public and employee share ownership. In addition, the relationship between ownership concentration and firm efficiency is U-shaped, indicating the presence of tunneling activities by the largest shareholder. Among three types of controlling shareholder, state exerts the most negative impact on firm efficiency, followed by state-owned legal entities. These results provide strong evidence that political interferences have reduced firm efficiency. It shows that the proportion of outside directors and the number of board meetings are positively associated with firm efficiency, suggesting that board of directors can be an effective internal governance mechanism. Furthermore, provincial market development, a proxy for the strength of external governance mechanism, is positively related to firm efficiency. Overall, our findings illustrate that restructuring state-owned enterprises via improvements in corporate governance has enhanced firm efficiency, but partial privatization without transfer of ownership and control from the state to the public remains a major source of inefficiency in corporate China.

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