Ownership structure, the role of institutional investors and corporate performance in the Chinese markets

This paper examines the relationship between ownership structure and firm performance and explores the role of institutional investors in corporate governance. By focusing upon 1623 companies listed in Shenzhen and Shanghai Stock Exchanges from 1998 to 2008, this study found that state ownership negatively related to firms’ financial, capital market and managerial performance. Financial and managerial performances were positive related to domestic and foreign institutional ownerships but rather insignificantly. State and institutional ownerships have a negative relationship with capital market performance. Eleven interviews with corporate managers and fund managers were conducted to identify the perceptions and behaviours of institutional investors. It was found private institutional investors were either less powerful or reluctant to influence the company, which implies that the role of institutional shareholders is weak in Chinese markets. It is proposed that an independent state-owned asset management company could have a positive role to enhance corporate governance and thus improve firm performance.