Research On The Relationship Between Ownership Concentration And Corporate Performance

Academia has been researching the factors which would influence the Corporate Performance long time ago, of which Corporate Governance is viewed as the most important one. As one dimension of the Ownership Structure, the Ownership Concentration causes impact on performance by Corporate Governance Mechanism eventually, which can be seen in this way:Ownership Concentration�'Corporate Governance Mechanism�'Corporate Performance.As a manufacturing power, manufacture is the mainstay industry of our national economy, so its vicissitude will determine China’s economic restructure and international competitiveness directly. Though the ownership concentration decreases gradually in the listed manufacturing corporate, the variation is slight and it’s still in a high level of relative concentration. In addition, the state-owned property companies take two-thirds of the total sample, taking on a One Stock Dominance phenomenon. Meanwhile, the immaturity of the domestic stock market, imperfect legislation and so on all helps to shape the specific characteristic of the listed manufacturing companies in China. Set up rational Ownership Structure and improve the Corporate Governance Mechanism to boost performance; at the same time, perfecting the external legal environment and supervision mechanism and accelerating domestic stock market’s sustainable development becomes the top priority. How to achieve it?Theoretically, when highly-centralized model has been applied in practice, it will bring some benefits, such as controlling shareholder will take initiative to improve the management and regulators are willing to work harder, besides, the chance of hostile takeover will be very low. Although this model could give a rise to the better performance, it can also decrease the performance in the way that controlling shareholder’ tunneling to the corporate and their invasion to the minority stockholder. The Highly-fragmented model put the managers in charge of corporate and shareholders benefit a little because their investment proportion is quite low. Therefore, free riding becomes the catchword and the last resort of minority stockholders in the condition of extremely asymmetric information, only the external taking-over mechanism functions effectively. So to speak, the high centralization and the high fragment of equity are flawed and relatively-centralized one alleviates those defects, therefore it has the advantageous position theoretically.However, the outcome from empirical researches fails to fit in with hypothesis: some argues there’s no relation between Ownership Structure and corporate performance, some asserts it’s positive and some believes it’s negative, what’s more, some says it’s U shape or even inverse-U shape.Seemingly, copying the past researches can’t work. While referring to previous study abundantly, the actual particularity of our country should be taken into consideration. Given the industry characteristics, the nature of controlling shareholders’share and the veracity of performance variables, this text finally chooses the data from listed manufacturing companies in SSE, ranging from2006-2010.According to the descriptive statistics and correlation analysis, this text uses data respectively from total sample, state-owned property companies and private-owned property companies to establish the quadratic curve model consisting of ownership concentration degree variable, corporate performance variable and manipulated variables to verify whether the relative ownership concentration is the optimum model derived from theoretical analysis empirically and wish the study could be served as a reference to listed manufacturing companies to optimize the Ownership Structure, improve the corporate governance and increase the performance.There’re7chapters in this text and the main content in each chapter as follows:Chapterl Introduction:Introduce the researching background of this text; illustrate the purpose and meaning of choosing this topic, elaborate the research thought and framework and determine that the research method is both in normal and empirical way, also using charts and tables to build the researching framework, which can make the research thinking clearer.Chapter2Research Review:After collecting and classifying different researching outcome both domestic and abroad, I make comments on them in order to grasp the research trends up to date and make clear the emphases of this text. During this process, I found though different conclusions had been made by researchers from different time, the recent domestic research mostly shows the there’s a nonlinear relation between ownership concentration and corporate performance.Chapter3Theoretical Analysis:Firstly, the concept of ownership concentration, corporate performance and the nature of controlling shareholders’share have been defined respectively, on the basis of which, I explore relevant theories again, finding out the transmission mechanism of ownership concentration towards corporate performance is Ownership Concentration�'Corporate Governance Mechanism�'Corporate Performance. Consequently, this text will conduct selective analysis on Corporate Governance Theory and Principal-agent Theory, which are the rationale of this text. Thanks to the analysis, it turns out that the relative ownership concentration has advantages in the four Corporate Governance Mechanism, they are Incentive Mechanism, Regulatory Balance System, External Takeover Mechanism and Proxy Contest Mechanism; it’s the optimum Ownership Structure theoretically. Meanwhile, Principal-agent Theory backs up the inverse-U shape relation between ownership concentration and corporate performance. At last, this text discusses the state-owned property’s impact on the relationship between ownership concentration and performance both in pros and cons.Chapter4the Analysis on the Ownership Concentration of Domestic Listed Manufacturing Companies. This chapter aims at having primary knowledge of the current situation and characteristic of both domestic A-share listed companies’and manufacturing listed companies’ ownership concentration level, which lays a foundation for the following passages. We find out that national manufacturing listed companies’ownership structure is relatively centralized and the ownership concentration is high. What’s more, state-owned companies take two thirds of the sample, the One Stock Dominance is obvious.Chapter5Research Design:This chapter includes two hypotheses:the first one is the relation between ownership concentration and corporate performance is inverse-U shape; the second one is the relation between ownership concentration and corporate performance is different when the nature of controlling shareholders’share changes. Besides those contents, this chapter contains the choice and definition of explanatory variable, dependent variable and manipulated variable; the construction of the empirical quadratic curve model; the source of data and criterion of sampling.Chapter6Empirical Results and Analysis:This chapter is the key part of this text, testing the relation between ownership concentration and corporate performance empirically. Finally, choose shareholding ratio of top5and top10shareholders as the measurement of ownership concentration, use ROE and CROA as the measurement of corporate performance. Moreover, the variables of company size, debt level and company growth, which are closely related to performance, has been controlled. Then delete some unnecessary data and conduct descriptive statistics, on that basis analyze the correlation among variables and finally take them into the quadratic curve model. The outcome of the empirical test authenticates the hypothesis2and partly backs up the hypothesis1.Chapter7Research Conclusions, Suggestions and Limit:By theoretical analysis, existing condition analysis and empirical analysis, we can come to the conclusions as follows:1.the concentration level of equity in listed manufacturing companies is relatively high and there are controlling shareholders in most of those companies; checks and balances system is pretty weak.2. Most of those listed manufacturing companies are state-owned.3. The result is chaotic before discriminating the nature of share and total sample shows the relationship between ownership concentration and corporate performance is nonlinear, but the conclusion will change with the choosing of performance variables.4. The relationship between state property holding companies and corporate performance is U-shape remarkably, meanwhile private holding companies is inverse-U shape remarkably. When the top5shareholders’share is within54%-55%and top10shareholders’ share is within62%-65%, the performance reaches the highest level. This strongly proves that the relation between ownership concentration and corporate performance is subject to the nature of the controlling shareholders’share. According to the above conclusions, this text proposes different policies to state property holding companies and private holding companies respectively:1.maintain moderate ownership concentration2.enhance share balance3.swich the state-owned companies into private-owned companies and enforce the State-owned Shareholder’ supervision on managers. Finally, I indicate the limit of this text and look forward to the future research interests. The innovation of this text:This research aims at researching the manufacturing industry. The past researches often chose all the listed companies as studying sample; in fact the ownership concentration’s impact on corporate performance depends on the characteristic and competitiveness of the specific industry and there’s remarkable industry difference. Even in the same industry, if we categorize the industry by whether is protected or the intension of competitiveness, the researching results will differ. So, this text chooses the specific industry—manufacturing industry, which can affect national economy a lot—to conduct the research so as to avoid the influence caused by industry and also enriches the research of ownership concentration’s impact on corporate performance in specific industry.According to the principle of ultimate ownership theory, this research divides the total sample into several groups by the nature of the controlling shareholders’ share. Generally, foreign scholars view state-owned and private-owned as the standard of classifying the nature of share. Domestically, either the nature of controlling shareholders’share is not discriminated or follows the way the government statistical report categorizing the state-owned shares, institutional shares and tradable share. The former error will conceal the different influences of state-owned property and private-owned property to the conclusion and the latter one will blur the definition of ultimate ownership. Hence, by employing Xu Liping’s (2006) categorizing method and based on the principle of ultimate ownership, this text divides the total sample into7categories according to the nature of controlling shareholders’share, they are National Asset Management Agency, State-owned Enterprises Directly Under the Central Government, State-owned Enterprises Directly Under the Local Government, Private Property, Foreign Investment, Financial Institute and Colleges and Universities respectively. This categorizing method discriminates the nature of controlling shareholders’ share by its character not the form and focuses on the state-owned holding companies and private-owned holding companies.This research comes up with different suggestions to different companies. The empirical outcome confirms the influence which the nature of controlling shareholders’share imposes on the relationship between ownership concentration and corporate performance. Therefore, this text comes up with different suggestions to state-owned holding companies and private-owned holding companies respectively and avoids ambiguous advices, so it can help guiding those listed manufacturing companies better.The possible improvement of this text:First of all, improve the methodology. This text fails to employ the year-by-year regression analysis to rule out the interference by time and some other factors. The future research can do better by introducing the panel data method.Secondly, realize dynamic research. Strictly, the ownership concentrations’ influence to corporate performance is dynamic, so we need to have some serious thinking of how to make this research more dynamic.Lastly, perfect the controlling variables. This paper only controls a few variables, which can impact the variable of corporate performance. But besides those controlling variables, there are definitely other unknown factors can also affect the corporate performance. Due to the time and ability issue, I can’t eliminate all those interfering variables and this will certainly have impact on the veracity of this paper. Hopefully the future research can find the most suitable and comprehensive controlling variables.