Corporate ownership, equity risk and returns in the People's Republic of China

Hong Zou, Mike B. Adams

Research output: Contribution to journalArticle

  • 40 Citations

Abstract

A large body of literature has examined how managerial ownership affects corporate strategy and risk-taking. The present study extends this literature by investigating the effect of other forms of corporate ownership on a firm’s equity risk (measured as the volatility of a company’s stock returns) and stock returns in the People’s Republic of China (PRC) – an important emerging economy that is rich in various forms of corporate ownership. We find that the various types of corporate ownership appear to have important but different impacts on equity risk and returns. In particular, companies with more state ownership tend to have higher stock volatility and lower stock returns; in contrast, companies with more legal-person ownership tend to have lower stock volatility and higher stock returns. Foreign and managerial ownership are found to have little effect on firms’ equity risk and returns. These findings support the predictions of agency theory – for example, that state ownership increases agency conflicts in companies because bureaucrats and state agencies do not have the same economic incentives to maximize the value of firms. We believe that our study contributes to the international business literature on investment strategy and risk assessment in developing markets such as China, and as a result our findings could have important implications for international investors.
LanguageEnglish
Pages1149-1168
Number of pages20
JournalJournal of International Business Studies
Volume39
Issue number7
Early online date21 May 2008
DOIs
StatusPublished - 2008

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Industry
Risk assessment
Corporate ownership
Equity returns
Stock returns
China
Risk and return
Equity risk
Economics
Stock volatility
Managerial ownership
State ownership
Corporate strategy
Risk taking
Investment strategy
Agency conflict
Emerging economies
Foreign ownership
Taiwan
Prediction

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Corporate ownership, equity risk and returns in the People's Republic of China. / Zou, Hong; Adams, Mike B.

In: Journal of International Business Studies, Vol. 39, No. 7, 2008, p. 1149-1168.

Research output: Contribution to journalArticle

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