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OWNERSHIP STRUCTURE, ONGOING RELATED PARTY TRANSACTIONS AND CORPORATE PERFORMANCE: EVIDENCED FROM CHINESE LISTED FIRMS

Mei-Ai Cheng, Noel W. Leung

DOI: 10.22495/cocv11i2c5p2

Abstract

This paper is to review the association of the magnitudes of ongoing related party transactions with the largest shareholders (ORPTs) on the ownership structure and their impact on corporate performance of Chinese listed firms after substantial reform of Chinese corporate governance framework in 2005. Previous literature found that the largest shareholders used related party transactions to tunnel or prop up their controlled firms for their own benefits. Based on a sample of 6657 firm-year observations from 2007 to 2011, the authors find that there is still a positive association between ownership of the largest shareholders and ORPTs, but no significant association between ORPTs and corporate performance, and therefore, there is no evidence that the largest shareholders use ORPTs to tunnel or prop-up their listed firms. This study also finds that there is an endogenous effect of ownership of the largest shareholders on ORPTs, and the authors suggest that the largest shareholders still have to retain the control of Chinese listed firms because in economic reality, those listed firms are still an integral part of business operations of the largest shareholders (business groups), i.e. alignment effect.

Keywords: Ownership Structure, Ongoing Related Party Transactions, Corporate Performance

How to cite this paper: Cheng, M. A. & Leung, N. W. (2014). Ownership structure, ongoing related party transactions and corporate performance: evidence from Chinese listed firms. Corporate Ownership & Control, 11(2-5), 446-464. http://doi.org/10.22495/cocv11i2c5p2

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