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Friend or Foe? The Role of State and Mutual Fund Ownership in the Split Share Structure Reform in China

Published online by Cambridge University Press:  31 March 2010

Michael Firth ,
Chen Lin  and
Hong Zou
Michael Firth
Affiliation:
Department of Finance and Insurance, Lingnan University, Tuen Mun, Hong Kong, China. mafirth@ln.edu.hk
Chen Lin
Affiliation:
Department of Economics and Finance, City University of Hong Kong, 83 Tat Chee Ave., Kowloon Tong, Kowloon, Hong Kong, China. chenlin@cityu.edu.hk
Hong Zou
Affiliation:
Department of Economics and Finance, City University of Hong Kong, 83 Tat Chee Ave., Kowloon Tong, Kowloon, Hong Kong, China. hongzou@cityu.edu.hk
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Abstract

The recent split share structure reform in China involves the nontradable shareholders proposing a compensation package to the tradable shareholders in exchange for the listing rights of their shares. We find that state ownership (the major owners of nontradable shares) has a positive effect on the final compensation ratio. In contrast, mutual fund ownership (the major institutional owner of tradable shares) has a negative effect on the compensation ratio and especially in state-owned firms. The evidence is consistent with our predictions that state shareholders have incentives to complete the reform quickly and exert political pressure on mutual funds to accept the terms without a fight.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 45 , Issue 3 , June 2010 , pp. 685 - 706
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2010

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