EconPapers    
Economics at your fingertips  
 

The effect of the split share structure reform on working capital management of Chinese companies

Wei He, Tarun K. Mukherjee and H. Kent Baker

Global Finance Journal, 2017, vol. 33, issue C, 27-37

Abstract: Before the introduction of the Split Share Structure Reform (SSSR) of 2005, a dual stock system characterized Chinese-listed firms. The states owned non-tradable shares and private owners held tradable shares. The dual system generated agency problems because state owners enjoyed all the rights reserved for tradable shares but escaped the stock market risk faced by non-state shareholders. Because executives of state-owned enterprises (SOEs) received rewards based on the book value of assets rather than the market price of shares, they had no incentive to maximize the share price. The SSSR led to the conversion of non-tradable shares to tradable shares, with two major implications: (1) the interests of government and private owners are now more closely aligned and (2) government agents of SOEs are now rewarded and punished based on a firm's market performance. Thus, the expectation is that government agents turn their attention to improving a firm's market performance rather than its book value during the post-reform era. We examine the impact of the SSSR on Chinese firms' investments in working capital. Based on 511 manufacturing firms between 2003 and 2011, we find that the SSSR is associated with significant reductions in working capital investments during the post-reform period. The reduced investment in working capital is associated with improved market performance of these firms.

Keywords: Split share structure reform; Working capital management; Cash conversion cycle; China (search for similar items in EconPapers)
JEL-codes: G30 G38 (search for similar items in EconPapers)
Date: 2017
References: Add references at CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1044028316300928
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:33:y:2017:i:c:p:27-37

DOI: 10.1016/j.gfj.2017.02.003

Access Statistics for this article

Global Finance Journal is currently edited by Manuchehr Shahrokhi

More articles in Global Finance Journal from Elsevier
Bibliographic data for series maintained by Catherine Liu (repec@elsevier.com).

 
Page updated 2024-12-28
Handle: RePEc:eee:glofin:v:33:y:2017:i:c:p:27-37