Foreign investment, corporate governance and performance in the Chinese listed A Share companies

Beatson, Samuel A.; Chen, Jian

Abstract

We present a novel lens on the presence and impact of qualified foreign institutional investors (QFII) in top shareholdings of the non-financial domestically listed Chinese ‘A’ share firms. The initial results suggest that the presence of a QFII as a top shareholder in these companies is associated with their better performance, using both Tobin’s Q and ROA as the performance measures. Our models include variables representing corporate governance mechanisms, foreign legal person shares, a proxy for international affiliations and a number of time-variant firm characteristics. Economically, the coefficient of impact on the market measure is the more significant, while the effect of having a QFII in top shareholdings on both performance measures is empirically significant. Previously, studies have often ignored the potential for reverse causality beyond using lagged regressors. This is problematic. Therefore, we follow up with a 2SLS instrumental variables and system GMM model to further mitigate this potential and find the empirical relationship holds. Contrary to earlier work on QFIIs and governance post-implementation of the QFII scheme, the findings from our models suggest that the presence of a QFII top shareholder augments market performance holding equal existing corporate governance mechanisms and other controls.

• Journal Article Type: Article
• Acceptance Date: Jun 1, 2017
• Online Publication Date: Aug 2, 2017
• Publication Date: Jan 1, 2018
• Deposit Date: Dec 5, 2017
• Publicly Available Date: Feb 3, 2019
• Journal: Journal of Chinese Economic and Business Studies
• Print ISSN: 1476-5284
• Electronic ISSN: 1476-5292
• Publisher: Routledge
• Peer Reviewed: Peer Reviewed
• Volume: 16
• Issue: 1
• Pages: 59-93
• DOI: https://doi.org/10.1080/14765284.2017.1346931
• Keywords: G3 corporate finance and governance, G32 capital and ownership structure, F65 finance, G15 international financial markets
• Public URL: https://nottingham-repository.worktribe.com/output/963702
• Publisher URL: http://www.tandfonline.com/doi/abs/10.1080/14765284.2017.1346931
• Additional Information: This is an Accepted Manuscript of an article published by Taylor & Francis in Journal of Chinese Economic and Business Studies on 2 August 2017, available online: http://www.tandfonline.com/10.1080/14765284.2017.1346931.