Separation of Control and Cash-Flow Rights of State Owned Listed Enterprises: Channels of Expropriation after the Discriminated Share Reform in China

Literature on agency problems arising between controlling and minority owners claim that separation of cash flow and control rights allows controllers to expropriate listed firms, and further that separation emerges when dual class shares or pyramiding corporate structures exist. Dual class share and pyramiding coexisted in listed companies of China until discriminated share reform was implemented in 2005. This paper presents a model of controller to expropriate behavior as well as empirical tests of expropriation via particular accounting items and pyramiding generated expropriation. Results show that expropriation is apparent for state controlled listed companies. While reforms have weakened the power to expropriate, separation remains and still generates expropriation. Size of expropriation is estimated to be 7 to 8 per cent of total asset at mean. If the "one share, one vote" principle were to be realized, asset inflation could be reduced by 13 percent.

The innovation process of a privately-owned enterprise and a state-owned enterprise in China

This study compares the innovation process of a privately-owned enterprise and a state-owned enterprise in China using their patent data. Huawei and ZTE were selected for this study because they experienced the same historical environment in the same industry from the same region in China leaving their owner types as their critical difference. This study investigates the difference in the innovation process in R&D between a privately-owned and a state-owned enterprise by analyzing (1) domestic and international patent application pattern, (2) co-application and co-applicants, (3) knowledge accumulation inside Huawei and ZTE, and (4) knowledge spillover to domestic and foreign firms.