1、 State-Owned Enterprises Going Public: The Case of China* Xiaozu Wang School of Management Fudan University Lixin Colin Xu Development Research Group The World Bank Shirley and Xu, 2001). These reform measures were accompanied by improved productivity of SOEs during the 1980s (Groves et al., 1994; J
2、efferson, Rawski, and Zheng, 1994; Zhuang and Xu, 1996; Li, 1997; Xu, 2000). However, the performance of Chinese state industry has since deteriorated (Lardy, 1998). In the early 1990s the Chinese government began to shift the focus of SOE reform to privatization of small SOEs and corporatization of
3、 larger ones (Cao, Qian and Weingast, 1999; Lin and Zhu, 2001). Public listing of SOEs in the domestic stock exchanges is a key measure of corporatization. Indeed, the vast majority of Chinas publicly listed companies are formerly state-owned or state-controlled firms, mostly large and better-perfor
4、ming ones.1SOEs low efficiencies are often attributed to a lack of managerial autonomy, soft budget constraints and the agency-incentive problem (Groves et al., 1994; Qian, 1996; Qian and Roland, 1996). In theory, public listing can potentially help separate government from enterprises and hence inc
5、rease enterprise autonomy and harden 1Our data set, to be described later, does not contain information about the types of the share-issuing firms. Based on our interviews with officials of the China Securities Regulatory Commission (CSRC), about 75% of listed companies are formerly state-owned. Ano
6、ther 10% are formerly shareholding companies with a significant portion of shares held by SOEs. Only less than 10% of listed companies are formerly private-owned firms or foreign-invested firms, which in most cases had SOEs as their joint venture partners. 2budget constraints. It may improve manager
7、ial incentives if it results in a more clearly defined structure of rights and responsibilities and the involvement of shareholders with incentives and the ability to monitor managers. Public listing should also help to raise capital for SOEs and thus reduce their traditionally high debt-to-asset ra
8、tios. In this research, we explore the extent to which public listing has contributed to the reform of SOEs, paying particular attention to its impact on firms operating performance and financial structure. Using a panel of pre- and post-listing data of all Chinese companies listed on the two domest
9、ic stock exchanges between 1994 and 2000, we find evidence that public listing lowers state ownership significantly, lessens firms reliance on debt finance, and allows firms to increase capital expenditure, at least temporarily. We also find that the ownership structure affects post-listing performa
10、nce. However, we find no statistical evidence of public listing exercising a positive effect on firms profitability. Specifically, firms operating performances after listing are significantly lower than their pre-listing level. We suggest alternative interpretations of this result. A number of recen
11、t papers have studied publicly-listed Chinese firms. Xu and Wang (1998) study the impact of ownership concentration and the share of state ownership on the performance of listed companies in China, but their study does not deal with the issue of whether or not public listing itself improves company
12、performance. Chen, Firth and Kim (2000) use a sample of about 330 IPOs in China between 1992 and 1995 to compare the differences in performance between A shares and B shares (the former are issued to domestic investors, and the latter to foreign investors). However, neither do they address the issue
13、 of how public listing affects company performance. Aharony, Lee and Wong (2000) use the decline in 3performance to demonstrate the existence of financial packaging in Chinese IPOs that issue shares to foreigners. In a paper that is more closely related to ours, Sun and Tong (2003) study the effects
14、 of public listing on several measures of firm performance in China. Our study differs from theirs in a number of respects. First, our study covers a longer time period. Second, they do not control for the overall trend of the financial performance in the countrys state-owned sector, and thus they c
15、annot distinguish intrinsic listing effects from the overall economic downturn in the 1990s for the state sector. Third, we also look at the effects of ownership structure on firm performance. Fourth, they do not explicitly control for the possibility of financial packaging. Finally, they draw some
16、of the conclusions on listing effects based on the levels (instead of ratios) of profits and sales, an approach which we view as problematic. Our study builds upon the empirical literature on the impact of public listing or initial public offering (IPO) on firm performance (Roell, 1996). This litera
17、ture focuses on developed countries, particularly the United States, and finds that public listing of privately-held companies tends to worsen company performance. Specifically, Ritter (1991) finds that IPO firms underperform a set of comparable firms matched by size and industry. Laughran and Ritte
18、r (1995) find that both IPOs and seasoned equity offerings significantly underperform relative to non-issuing firms for five years after the offering date. Jain and Kini (1994), Degeorge and Zeckhauser (1993) and Mikkelson, Partch, and Shah (1997) find that the performance of IPO firmsmeasured by re
19、turn on assets (ROA) or return on sales (ROS)declines in the first few years following the offering but do not decline further afterwards. One explanation for post-listing performance decline is managerial moral hazard resulting from reduced ownership stakes by management after listing (Jain and 4Ki
20、ni, 1994; Holthausen and Larcker, 1996). Another explanation is that the pre-listing performance may be exaggerated (Laughran and Ritter, 1995; Pagano, Panetta, and Zingales, 1998). For example, offering firms may window-dress their accounting figures prior to going public. They may also time the of
21、ferings to coincide with periods of unusually good performance or favorable market valuations. Consequently, the over-stated pre-IPO performance may result in a superficial decline in post-IPO performance. Our study is also related to the literature on share issue privatization, which refers to usin
22、g public listing as a way of divesting the governments ownership in SOEs (Megginson and Netter, 2001). Share issue privatization has been one of the major forms of privatization around the world since the 1980s. In summarizing the long-run performance of share issue privatization, Megginson and Nett
23、er (2001) state that, “the average long-term, market-adjusted return earned by international investors in share issue privatizations is economically and significantly positive.” While public listing in developed countries either turns a privately-held company into a more widely-held public company,
24、or transforms an SOE into a private-owned public company, public listing in China is largely used to corporatize SOEs. Chinas share issue corporatization aims to transform an SOE into a modern-form corporation that features both state and non-state institutional shareholders in addition to small ind
25、ividual shareholders. If the public listing of private firms worsens company performance in developed economies and share issue privatization of SOEs in these countries improves performance, it is an intriguing empirical question as to whether public listing would improve or worsen firm performance
26、in the intermediate case of share issue corporatization and in the context of Chinas transitional economy. 5In the following section, we provide some background information on public listings and the development of the stock market in China. Section 3 describes the data and presents some preliminary
27、 results comparing the sample firms financial outcomes and ownership structures before and after public listing. Main findings from regression analyses are reported in Section 4. The last section concludes. 2. Public Listings in China Chinas stock market was officially established in 1990 when eight
28、 firms first went public in the Shanghai Stock Exchange (SHSE). In the following year, Shenzhen Stock Exchange (SZSE) was also established. The following decade witnessed phenomenal growth in Chinas stock market, as outlined in Table 1. (Insert Table 1 here) At the end of 2000, 1088 firms were liste
29、d on the two exchanges, with a total market capitalization close to RMB5 trillion (about US$0.6 trillion2), or 54% of Chinas GDP. The stock market has also become an increasingly important means of raising capital for Chinas SOEs, resulting in more than RMB480 billion new equity issuance during 2000
30、 alone. Chinas publicly-listed companies are allowed to issue four types of shares. The predominant type is A shares; these are listed in China, denominated in RMB and their sales are restricted to domestic investors. B shares are also listed in China and denominated in RMB, and until June 2001 thei
31、r purchase was restricted to foreign 2The current exchange rate is roughly US$1 = RMB8.2. 6investors using foreign currency. The two other types of shares are H and N shares, which are issued in Hong Kong and New York respectively by A-share or B-share issuing firms. While most companies only issue
32、A shares, the majority of B-share issuing companies also issue A shares. By the end of 2000, of the total 114 B-share issuing firms only 28 issued B-shares exclusively; the rest also issued A shares. All the 19 H-share firms had also issued A-shares. The shares of listed companies are typically divi
33、ded into state, legal-person and public shares.3The first two categories of shares cannot be traded on the stock exchanges, and their transfer requires special approval from the China Securities Regulatory Commission (CSRC). Public shares are tradable shares issued to the public and are normally hel
34、d by small individual shareholders. The distinction between state and legal person shareholders is often times superficial. State shares are held by government bodies such as state asset management agencies, or institutions authorized to hold shares on behalf of the state such as a wholly state-owne
35、d investment company. Legal person shares are shares held by any entity or institution with a legal person status, including an SOE or a company controlled by an SOE. We do not have precise information about the identity of legal person shareholders, but it is safe to say that state ownership, direc
36、tly or indirectly, accounts for a significant portion of all the legal person shares. Some authors, however, suggest that the distinction between state ownership and legal-person ownership can be consequential (Tian, 2000; Berkman, Cole and Fu, 2002; Sun and Tong, 2003). We thus will let the empiric
37、s tell us whether legal-person ownership entails consequences different from state ownership. 3A company can also issue employee-held shares, which normally account for less than 1% of the total shares. They may become tradable three years after the IPO if approved by the regulator. 7Before 2001, th
38、e question of whether a Chinese company could make an IPO was determined largely by an administrative process rather than the market process seen in developed economies. When an SOE wants to go public, it must seek permission from the local government or/and its affiliated central government ministr
39、ies, which receive an IPO quota from the CSRC.4Under such a quota system, how many and which firms go public each year depends not only on the quality of the firm and on macroeconomic conditions, but also on the availability and distribution of the quota. All firms in our sample went public under th
40、e quota system. 3. Data and Preliminary Findings Data and Variables The data for this study is a panel of accounting and ownership data of all companies listed on the SHSE or SZSE.5There are 1057 firms in our initial data set covering all firms listed between 1991 and June 2000. Since there was a ma
41、jor accounting reform in 1993, which made it difficult to compare a companys 4There are no explicit rules governing quota allocations. Information on how much quota is issued to whom is hard to obtain. Based on our interviews with investment bankers and regulators in China, quota may even be allocat
42、ed to such organizations as the National Union of Women and the Communist Youth League. In 2000, the government decided to abandon the quota system and let the market determine which firms can go public. The first non-quota IPO appeared in 2001. 5The data was purchased from Genius Information Techno
43、logy, a Shenzhen-based financial information service company in China. The data was corroborated for accuracy with the China Stock Market and Accounting Research Database (CSMAR) produced by GTA Information Technology, a company also based in Shenzhen. 8accounting numbers before and after the reform
44、, we opt to use firms that went public in or after 1994. Firms that went public in 1994 were required to adjust their pre-1994 accounting numbers to be consistent with the new accounting rules. After dropping missing values or invalid data entries, we have a sample of 793 firms for the period from J
45、anuary 1994 to June 2000. A novel feature of our data set is that it contains pre-listing information, which allows us to compare companies pre- and post-listing performance.6Another feature of the data set is that it is free of survival bias that may cause problems in studying listing effects on co
46、mpany performance. No firm in our data set ceased operations or was de-listed after going public. Although Chinas bankruptcy law was passed in 1986, listed companies can usually count on the government or state-owned banks to bail them out of financial difficulties and hence avoid bankruptcy. Also n
47、o publicly listed firms returned to private ownership in our sample period. Only in 2001 did we observe the first incidence of de-listing. In our regression analyses, we follow the existing literature in choosing our dependent and explanatory variables. This allows us to highlight the similarities a
48、s well as differences in the effects of public listing in China in comparison with countries that have been previously examined in the literature. Definitions of variables are listed in Table 2. 6IPO firms are required by law to provide three years of audited accounting data prior to listing. Howeve
49、r, since the CSRC was established in 1992, two years after the first stock exchange was established, and major disclosure rules were only issued in 1993 but were not immediately strictly enforced, the disclosure standard was not consistent during the first half of 1990s. As a result, about 20% of firms in our sample did not produce complete three-year pre-listing data. 9(Insert Table 2 here) To minimize the possibility of a small number of outliers driving the results, we follow other authors in the literature and Winsorize the data. Specifically, we reset the value o
