Share reform and the performance of China's listed companies

In 2005, a reform program was initiated in China's stock markets. It acted to increase the proportion of shares that were freely tradable in the markets and also paved the way for a decline in government ownership of listed companies. This paper considers the impact the reform program might have on the performance of listed companies by analyzing the impact the tradable share proportion and the government-owned share proportion had on firm performance immediately prior to the reform commencing. The government-owned share proportion is found to have exerted a linear and positive impact on firm performance. It is further revealed that this impact is best explained by the high ownership concentration of these holdings. The policy implication is that efforts must be made to raise the involvement of non-government institutional investors, including foreign ones, if the reforms are to have their intended effect. (c) 2008 Elsevier Inc. All rights reserved.