Ownership structure and the private benefits of control: an analysis of Chinese firms

This study aims to investigate the relationship between the ownership structure of firms and the private benefits of control through an analysis of Chinese listed firms.

Using a sample of Chinese firms, cases were examined where there had been a transaction involving non‐tradable stock. The cases where there had been stock transactions which both did and did not involve the transfer of control within a single year were selected. The difference between these two types of transaction was used to estimate the private benefits of control in Chinese listed firms. Regression analysis was used to explore the relationship between ownership structure and private benefits of control in Chinese listed firms.

The results show that the average private benefit of control is 18.52 percent in China. The regression results show a significant, positive relationship between the controlling shareholders, the combined shareholdings of the second to fifth largest shareholder and private benefits of control. However, there is a negative but insignificant relationship between the tradable share value and private benefits of control. With regard to the relationship between managerial shareholding and private benefits of control, the regression results show a positive but insignificant relationship.

Further insights into the private benefits of control can be obtained by inspecting the change around major corporate events involving significant ownership changes. In this study, the focus was on non‐tradable stock. Investigating all stock would be a fruitful area for future research.

In China, firms should optimize the ownership structure and curb expropriation by controlling shareholders. This would help to promote a sound development of Chinese listed firms and the capital market.

The research provides useful information on the impact of ownership structure on private benefits of control in a sample of listed firms in China.