Does Incorporation Improve Firm Performance?

Since the 1990s, China has made a significant effort to transform its state-owned enterprises into shareholding companies and allow its private firms to become incorporated. This corporatization policy has been used to restructure state-owned enterprises as well as govern a growing and diverse set of firms in a marketizing economy. The intent of these reforms is that, as has been found in other economies, incorporation should improve firm performance through granting previously state-owned and private firms the various legal forms that provide better protection of property rights and limited liability protection, among others. The findings are that incorporation improves firm performance separately from privatization and listing on stock markets. Even with an under-developed legal system and imperfect capital markets, incorporation generates a productivity improvement which bodes well for the emerging corporate sector in China.