State Ownership and Firm Performance Evidence from the Chinese Listed Firms

ISSN 2029-4581. ORGANIZATIONS AND MARKETS IN EMERGING ECONOMIES, 2011, VOL. 2, No. 2(4)

State ownership and firm

performance: Evidence from

the Chinese listed firms

Trien Le*

School of Business, International University; Vietnam National University HCMC, Vietnam

Amon Chizema**

Loughborough University Business School, UK

Abstract. Based on a sample of Chinese listed firms, this paper seeks to understand the role of state

ownership on firm performance (accounting-based returns) and firm value (market-based indicators).

Results show that state ownership is positively associated with firm performance. In addition, state

ownership has a moderating effect on the association between firm performance and firm value. At

low levels of state ownership, firm performance is negatively associated with firm value. However, at

high levels of state ownership, the association becomes positive. Drawing on signaling theory, the study

helps to understand the role of state ownership in the association between firm performance and firm

value, an area that has received minimum attention in research. Specifically, state ownership may be

a strategic asset for Chinese listed firms boosting accounting returns but perceived differently by the

market. Given the current levels of state ownership in many transitional economies, this study sheds

light for policy makers on the effects of high or low levels of state ownership on firm performance and

value. Moreover, the study may assist would-be investors who may contemplate investing in privatized

SOEs, in China or other countries with similar institutional arrangements.

Key words: state ownership, firm value, firm performance, signaling, China

Introduction

Transitional nations around the world have transformed their economies towards

market-based systems (Djankov & Murrell, 2002; Megginson & Netter, 2001; Estrin,

Hanousek, Kočenda, & Svejnar, 2007), including the privatization of public sector

firms (Brada,...