The Financial and Operating Performance of Chinese Family-Owned Listed Firms

Article excerpt

Abstract and Key Results

* While existing studies often use sector-level data to explain the phenomenal growth of the Chinese private sector, this paper complements the literature by using firm-level data to conduct a comparative study of performance between family-owned and state-owned firms in China.

* Taking a population comprising listed firms for the period 1999-2004, we analyze financial and operating performance with reference to five measures: (1) revenue per employee, (2) revenue per unit of cost, (3) net profit per employee, (4) return on assets, and (5) market-to-book ratio.

* Having controlled for other firm characteristics, such as size, leverage, firm age, sales volatility, innovation and marketing, institutional environment and industry, our results confirm that family-owned firms achieve significantly better performances than state-owned enterprises. These results support the general consensus that China is increasingly reliant on private companies as an engine for economic growth and an employment hub.

Key Words

China * Family-owned Firms * State-owned Firms * Performance


The world has witnessed an economic miracle in China over the past quarter-century: with average annual growth at around 9 percent and GDP quadrupled, China is now the world's largest and fastest-growing emerging economy. It is commonly accepted that this unprecedented growth has benefited from China's progressive economic reform, which is successfully transforming the country's central planning system into a market economy. In this transition, the private sector has been the driving force behind China's remarkable GDP growth. Anderson et al. (2003) point out that the most significant phenomenon in China's current reform is the decline of state-owned enterprises and the rise of the private sector.

Anderson et al. (2003) document the development of the private sector in China since 1978 with convincing sector-level evidence. However, there is still a lack of firm-level evidence on the performance of private enterprises in China, mainly due to the problem of data availability and accuracy. Firm-level data for private enterprises are seldom publicly available. Given the uncertainty surrounding the political and economic environment, discretion is often a golden rule in these firms. For example, Geely, the largest private carmaker based in Zhejiang province, refused to take part in the 2004 survey conducted by the All-China Federation of Industry and Commerce on the largest Chinese private companies (McGregor 2004). And as Anderson et al. (2003) point out, data from private enterprises may not be accurate because of the possibility of "serious underreporting." All this means that the existing literature mainly focuses on the restructuring of state-owned Chinese enterprises (e.g., Li 1997, Shirley/Xu 1998, Sun/Tong 2003) and pays little attention to the performance of private ownership.

This paper takes publicly-listed private firms as the research object. There are now more than one hundred family-owned firms listed on the Chinese stock market, more than 10 percent of the total. Inspired by Anderson et al. (2003), the present study attempts to examine the performance of private ownership as compared to state ownership. This comparison is very relevant in China, since family firms and state-owned enterprises (SOEs) are the two dominant forms of business organization in Asia (Claessens/Djankov/Lang 2000).

We use the following five measures for performance comparison between family-owned and state-owned firms: (1) revenue per employee, (2) revenue per unit of cost, (3) net profit per employee, (4) return on assets, and (5) market-to-book ratio. These measures respectively capture a firm's human resource performance, operating efficiency, productivity, economic profitability and market value. Specifically, we attempt to address the following question: Do different ownership structures lead to different performances? …


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