The role of the state, ownership structure, and the performance of real estate firms in China

Prior studies suggest that high levels of state ownership are related to poor performance of listed companies in China. As a result, privatization has become an important tool to revitalize the under-performing state-owned companies. We have therefore witnessed a continuous decline in the state shareholding over the past decade as a result of the ongoing economic reforms. In this article, we examine the role of state ownership in real estate sector to find out whether shrinking state ownership in a strategically important sector like real estate impact on performance.Using 1999-2010 data on all listed real estate firms, this article shows that relatively higher state shareholding is associated with poor performance in the pre-boom years and better performance in the booming years. The analysis also suggests that the positive effect in the booming years is non-linear and high level of state ownership can still lead to inefficiency and relatively poor performance. In addition, other types of shareholding and concentration of shareholding are also examined. Better firm performance is related to either very low or very high levels of legal person shareholdings. The effect of tradable A-shares fraction on company performance is negative and significant. Management share ownership has a positive influence on performance. Finally, the effect of ownership concentration on performance is also positive in general. © 2013