**1. Introduction**

Corporate governance (CG) is a system of checks and measures that prevent the detrimental actions of directors and conflicts of interest between owners and managers [1,2]. CG is well established in developed markets such as the USA and Canada, but what about emerging economies with emerging structures? In these economies, there is no clear evidence that CG impacts corporate performance [3–6]. This is an important question that needs special examination, especially within the broad economic reforms that have been recently launched in some developing countries, such as the latest stock split reform in China in 2005 [7–9].

This latest reform brought about significant changes in ownership structures in China's listed companies, especially by removing restrictions on non-tradable shares. Ownership

**Citation:** Aboud, A.; Diab, A. Ownership Characteristics and Financial Performance: Evidence from Chinese Split-Share Structure Reform. *Sustainability* **2022**, *14*, 7240. https://doi.org/10.3390/ su14127240

Academic Editor: Wen-Hsien Tsai

Received: 21 May 2022 Accepted: 7 June 2022 Published: 13 June 2022

**Copyright:** © 2022 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https:// creativecommons.org/licenses/by/ 4.0/).

structures are crucial CG mechanisms [10–15], especially in settings with higher ownership concentrations and state ownership levels, such as the Asian markets in general and the Chinese market in particular [16]. In emerging markets, where (external) governance mechanisms and legal systems are not highly effective, as they are in developed markets, internal CG mechanisms, such as those related to ownership structure, become increasingly apparent as monitoring mechanisms [17–19].

Scholars worldwide have recently investigated the impact of ownership structures on firm performance [20]. However, the reported findings are mixed. In particular, a set of studies informed positive implications e.g., [21–23]. Other studies perceived ownership structures, especially state ownership, negatively e.g., [24–27]. The mixed results in the literature indicate the context-dependent nature of the CG–firm financial performance relationship and the importance of understanding this relationship in its institutional and contextual environment. In this regard, Nguyen et al. [28], for example, found that the positive impact of ownership concentration on company performance is more related to contexts with lower governance systems (such as Vietnam) than contexts with effective governance systems (such as Singapore). Despite the importance and the significant implications of the stock split reform in China, there is a limited empirical study with a recent broad set of data that examines its implications for the governance process. Thus, it is vital to investigate the impact of this reform on governance mechanisms to test the influences of regulatory interventions on the quality of corporate governance. It also provides a unique setting to contribute to the ongoing debate on the nexus of the ownership– firm financial performance relationship.

The Chinese market was chosen as the study context because it is currently one of the most important developing economies worldwide. In addition, economic reforms in China are underway where state-owned enterprises (SOEs) are being transformed into modern firms [29]. Notably, in 2005, the China Securities Regulatory Commission presented the split-share structure reform, allowing public companies' non-tradable shares to be tradable by eliminating restrictions on all shares [8]. As a result, China's economy has faced vast economic growth during the last years. During this economic transformation, state intervention was apparent, making this context worthy of a particular investigation.

The Chinese economy has unique characteristics that motivated us to conduct this study in this unique context. These include the higher levels of government interference and the lower levels of investors' legal protection compared to developed markets, such as the USA; the economic transformation without political changes, as is the case with most emerging markets [29–31]; the apparent links between corporate executives and the government [32]; the minimal managerial equity ownership [6]; the presence of a unique ownership structure in which shares are classified according to five distinct classes of owners: the state, legal persons, employees, domestic individuals, and foreign individuals or institutional holders; the higher levels of ownership concentrations, where a single or a few owners own the majority of shares, in contrast to the case of developed markets, such as the USA, that have lower levels of ownership concentration [29]; and finally, the non-tradable nature of state ownership [33]. Despite these peculiar features, the studies conducted in the Chinese context are limited and report mixed findings, such as Wu and Cui [34], on the positive side, and Filatotchev et al. [17] on the negative side.

We revealed that concentrated ownership is positively and significantly associated with corporate performance. However, state ownership has a significant negative effect on corporate performance. Further, we observed that the stock split reform has a substantial and positive effect on the ownership–firm financial performance relationship. Particularly, the positive association between ownership concentration and firm performance has increased following the split-share structure reform. The negative association between state ownership and firm financial performance has been mitigated following the split-share structure reform. This research contributes to the previous studies by bringing evidence from an emerging market where a few studies have been conducted e.g., [8,17,28,35]. It also extends the limited studies related to the impact of ownership characteristics on firm performance in China, and the present inconclusive evidence reported in the literature in general see, e.g., [17,33,35–37]. Further, it extends the minimal studies concerned with the impact of stock market reforms on the governance (ownership) structures–firm performance relationship [8,38,39].

The study is organized as follows. Section 2 presents the contextual background of the study. Section 3 clarifies the theoretical lens of the study. Section 4 provides a literature review and hypotheses development. Section 5 clarifies the research methods. Section 6 presents data analyses and discusses the findings. Finally, Section 7 concludes the paper.
