TY - JOUR
T1 - Corporate ownership, equity risk and returns in the People's Republic of China
AU - Zou, Hong
AU - Adams, Mike B.
PY - 2008
Y1 - 2008
N2 - 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.
AB - 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.
UR - http://www.scopus.com/inward/record.url?scp=53549100167&partnerID=8YFLogxK
UR - http://dx.doi.org/10.1057/palgrave.jibs.8400394
U2 - 10.1057/palgrave.jibs.8400394
DO - 10.1057/palgrave.jibs.8400394
M3 - Article
SN - 0047-2506
VL - 39
SP - 1149
EP - 1168
JO - Journal of International Business Studies
JF - Journal of International Business Studies
IS - 7
ER -