Abstract

There is limited research on understanding the relation between concentrated ownership structure and firm performance in the Chinese market. In this paper, I analyze this relationship using data from the small firm and growth enterprise markets in China. I conduct several cross-sectional tests using Tobin’s q and ROA as measures of firm performance. I find a significant cubic relationship between Tobin’s q and the largest shareholder’s ownership level while unaffiliated block-holders consistently show a negative effect on firm value. My results show that firm value first declines when family ownership is between 0 and 25.9 percent, then rises in the 25.9-54.2 percent range, and again falls when family ownership is greater than 54.2 percent. Furthermore, I find a non-linear relation between ROA and the largest shareholder’s ownership level. I also examine the effect of firm age and industry. While firm age is not related to firm performance in general, a positive relation is found for older firms. Finally, significant results with profitability are found for firms in the service industry.