A study on the optimal shareholding proportion of the controlling shareholders in the competitive mixed‐ownership enterprises: Evidence from Chinese listed companies

• Published date: 01 August 2023
• Author: Qiwang Zhang,Xiaorui Wang,Chunhui Huo,Wang Shulin
• Date: 01 August 2023
• DOI: http://doi.org/10.1111/infi.12430

Received: 3 May 2021

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Accepted: 30 December 2022

DOI: 10.1111/infi.12430

ORIGINAL ARTICLE

A study on the optimal shareholding

proportion of the controlling shareholders in

the competitive mixed‐ownership enterprises:

Evidence from Chinese listed companies

Qiwang Zhang

1

|Xiaorui Wang

1

|Chunhui Huo

2

|

Wang Shulin

3

1

Faculty of Economics, Business School,

Liaoning University, Shenyang,

Shenbei New District, Liaoning, China

2

Faculty of Economics, Asia‐Australia

Business College, Business School,

Liaoning University, Shenyang,

Shenbei New District, Liaoning, China

3

Faculty of Economics, Sun Wah

International Business School,

Liaoning University, Shenyang,

Shenbei New District, Liaoning, China

Correspondence

Chunhui Huo, Faculty of Economics,

Asia‐Australia Business College,

Business School, Liaoning University,

No. 58 Daoyi South St, Shenbei New

District, 110136 Shenyang, Liaoning,

China.

Email: huoch@lnu.edu.cn

Funding information

Social Science Planning Fund of

Liaoning Province,

Grant/Award Number: L22AGL001

Abstract

There is a wide debate on the optimal shareholding

proportion of controlling shareholders. Under the

background of China's mixed‐ownership reform, this

paper focuses on a specific firm setting of mixed‐

ownership enterprises in fully competitive industries,

and tries to find the heterogeneity in the association

between controllers' shareholding and firm perform-

ance. Specifically, with a sample of China's A‐share

listed companies from 2007 to 2018, we find significant

differences in this relationship due to different types of

controlling shareholders. The effect of controller

shareholding on firm performance is not significant

in foreign‐controlled enterprises, while that of private

enterprises presents a monotone increasing linear

relation with statistical significance. No optimal con-

trolling shareholding interval is found in either

foreign‐controlled or private‐controlled enterprise. In

state‐controlled enterprises, we find an overall inverted

U‐shaped with local stage linear relationship between

state‐controlling enterprises' controller shareholding

and firm performance. The optimal interval of state‐

controlling shareholding is 42%–68%.

International Finance. 2023;26:208–224.wileyonlinelibrary.com/journal/infi208

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© 2023 John Wiley & Sons Ltd.

KEYWORDS

controlling shareholder, corporate governance, firm

performance, mixed‐ownership reform, optimal shareholding

proportion, ownership structure

1|INTRODUCTION

Shareholding enterprises allow various capitals to hold shares together, and thus usually have

obvious advantages in financing, risk sharing and scale economy. Meanwhile, the attribute of

the controlling shareholders and their shareholding proportion usually lead to the

differentiation of firms' ownership structure. On the one hand, heterogeneous shareholders

may have mutual complementarity in corporate governance. On the other hand, there may also

exist the large shareholders' expropriation, thus raising modern corporate governance

problems, and affecting enterprises' operation and consequences. The association between

ownership structure and firm performance has been an important debate in academia. Some

argue that there is a significant association between ownership structure and performance

(Oswald & Jahera, 1991). They believe that a relatively concentrated ownership structure is

conductive to the firm performance, but the impact will decline with a high degree of

concentration. Moreover, this impact is also constrained by the attribute of controlling

shareholders (Thomsen & Pedersen, 2000), and the shareholding proportion of managers

(McConnell & Servaes, 1990). Some others claim that there is no systematic relationship

between the degree of ownership concentration and firm performance (Demsetz, 1983;

Demsetz & Villalonga, 2001). Holderness and Sheehan (1988) pointed out that there is no

statistical difference in the accounting rate of return and Tobin's Q between majority‐

shareholder and diffusely held firms. In China, although a large amount of existing literature

works revealed a significant relationship between ownership structure and performance, there

also have been opposing arguments as to whether ownership concentration benefits or impedes

firm performance (Wang & Shailer, 2015). Furthermore, even many scholars support the

existence of such an association, their findings vary in the specific correlations, such as inverted

U‐shaped (Luo & Liu, 2014), U‐shaped (Wei & Varela, 2003; Yu, 2013), linear relationships

(Claessens et al., 2002). Actually, the impact of ownership structure on performance will vary as

we study firms with different settings. Existing studies tend to use Chinese listed companies as

a whole, yet failing to give much attention to a specific firm setting of state‐private mixed

ownership in China.

In 2015, China started to launch the mixed‐ownership reform in the enterprises that operate

in fully competitive industries. Mixed‐ownership enterprises refer to the enterprises where state

capital and nonstate capital holding shares together. By introducing more private shareholders

into state‐controlling enterprises (SOEs) or state capital into private enterprises, China's mixed‐

ownership reform aims to improve the corporate ownership structure, promote the integration

of state and nonstate capitals, and enhance the vitality of enterprises. However, there are some

key questions that need us to consider. Does an optimal shareholding proportion of controlling

shareholder exist to maximise the firm efficiency? Mixed‐ownership enterprises could be

further classified into three categories according to the attribute of their controlling

shareholders, namely, SOE, private‐controlling (PE) and foreign‐controlling enterprises

(FIE). Will the optimal shareholding proportions differ among the three categories?

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