Review of Finance Advance Access published online on October 21, 2009
Review of Finance, doi:10.1093/rof/rfp024
Helping Hand or Grabbing Hand? Central vs. Local Government Shareholders in Chinese Listed Firms*
1 Hong Kong Baptist University
2 Purdue University
3 City University of Hong Kong
We analyze related party transactions between Chinese publicly listed firms and their state-owned shareholders to examine whether companies benefit or lose from the presence of government shareholders and politically connected directors. Minority shareholders seem to be expropriated in firms controlled by local governments, firms with a large proportion of local government directors on their board, firms without central government directors, and firms in provinces where local government bureaucrats are less likely to be prosecuted for corruption. In contrast, firms controlled by the central government (or having central government affiliated directors), benefit in related party transactions with their government parents.
JEL Classification: G30, K42
* We would like to thank an anonymous referee, Kee-Hong Bae, Sankar De, Dave Denis, Chris P. Duk, Mara Faccio, Larry Lang, Xiaohong Liu, Florencio Lopez-de-Silanes, Sugata Marjit, John McConnell, Marco Pagano (the editor), Hua Zhang, participants at the 2005 European Finance Association meeting in Moscow, the 2005 Asian Finance Association meeting in Kuala Lumpur, the 4th Asian Corporate Governance Conference in Seoul, the 2005 Corporate Finance and Governance conference at City University of Hong Kong, the 2007 IFC Corporate Governance Seminar in Istanbul, the 2008 Chinese Finance Association meetings, and seminar participants at Tulane University, Wake Forest University, Stockholm School of Economics, University of Bologna, University of California at Santa Barbara, University of Columbia-Missouri, and the University of Palermo for helpful comments. We also thank He Wanwei, Ge Hui, Jiang Ping, Jing Lihua, Kwok Wai Ho, Helen Tse, Anita Wong, Wu Lingling, Zhou Kaiguo, and Lynda Zhou for research assistance, and Lu Tong for helping us obtain some of the data used in this study.