Improving corporate governance where the State is the controlling block holder: Evidence from China

This paper examines changes in values and returns for Chinese firms around announcements of block-share transfers among government agencies, State-owned enterprises and private investors. We find that transfers to all three types of investors result in positive abnormal returns around transfer announcements, even when the transfers do not create a new controlling block holder and when transfers are between State entities. We also find that transfers from State entities to private entities result in larger increases in value and returns than transfers between State-controlled entities - consistent with the superior incentives and expertise of private investors. We conclude that corporate governance can be improved at State-controlled firms by improving incentives and expertise of controlling block holders.