*TOBIN Q*/*MTB* = *β*<sup>0</sup> + *β*1*OWNCON* + *β*2*STAOWN* + *β*<sup>3</sup> *REFORM*

+*β*4*OWNCON* ∗ *REFORM* + *β*<sup>5</sup> *STAOWN* ∗ *REFORM* + *β*6*GENDIV* + *β*7*BINDEP* +*β*8*BSUPER* + *β*9*LNFSIZE* + *β*10*LEV* + *ε*<sup>i</sup> (1)

Our model includes two main independent variables, two dependent variables, and five control variables. Furthermore, this study addresses the impact of the split-share structure reform on the association between ownership and performance. Therefore, two interaction terms, *REFORM* \* *OWNCON* and *REFORM* \* *STAOWN*, are introduced in the model to address the degree of change in the relationship before and after the reform. These two interaction terms refer to the incremental relationship between ownership concentration and the state ownership ratio of performance following the reform, respectively.

Our dependent variable is corporate financial performance measured using Tobin's Q. Tobin's Q is a market-based performance measurement method. It tends to be a forwardlooking measure of firm financial performance that investors largely use [28,37,90,114,115]. Tobin's Q is defined as the proportion between the market value of assets and the book value of total assets at the end of the period. The market value is the sum of the company's equity value and debt value. As an alternative proxy of Tobin Q, this paper also presents the market-to-book value ratio (MBV) as the second dependent variable to measure firm performance. The market-to-book value ratio is the ratio of the market value to the book value.

Our principal independent variables are ownership concentration and state ownership. Consistent with previous studies, we employed the top ten shareholder ownership ratios to refer to the level of ownership concentration [114]. The ratio of state ownership is broadly employed to measure state ownership [111,112]. Thus, this study uses the state ownership ratio to study the association between state ownership and corporate performance.

Our study controls for some firm-level characteristics, namely, gender diversity, board independence, supervisor board, corporate size, and leverage. We employ the percentage of women on the board of directors as an indicator of board diversity and the ratio of independent directors in the board of directors to measure the independence of the board of directors [114,116]. Moreover, we employ the number of supervisory board members to measure the board of supervisors' impact on firm performance [37,117]. Previous empirical studies have shown that firm size and leverage affect corporate performance [37,116,118]. Therefore, we also incorporate the natural logarithm of the company's total assets to control the variables of firm size [37,116,119]. This study will also use the ratio of total liabilities

and total assets of the company as the company's leverage ratio [37,120]. Table 2 presents a summary of the variables.

**Table 2.** Definition of variables.


#### **6. Results and Discussion**

#### *6.1. Descriptive Analysis*

According to Panel A, the proportion of the top ten shareholders in Chinese stateowned enterprises ranges from 15% to 97.1%, with an average of 55.7%. This suggests that Chinese SOEs generally have a high degree of ownership concentration. According to panel B, before the reform, the average ownership concentration of Chinese SOEs was 57.8%, and the minimum was 21%. According to Table 3, Panel C, following the reform, the average ownership concentration of Chinese SOEs is 53.6%, and the minimum is 15%, suggesting a significant decrease after the reform. Furthermore, as per Table 3, Panel A, the average proportion of state-owned shares in Chinese state-owned enterprises is 38.8%. Furthermore, we find that the average state ownership has declined from 40.9% before the reform to 36.6% following the reform, as shown in Table 3, Panels B and C. Thus, the ownership concentration and the proportion of state-owned shares have both obviously decreased after the reform. Nevertheless, the ownership structure concentration and state-owned share ratio of Chinese state-owned enterprises are both still relatively high.

Regarding control variables, the average ratio of female directors is only 7.2%. The standard deviation is 0.087, indicating that the overall power of female directors on the boards of Chinese SOEs is inadequate. Table 3, Panel A also shows that the average ratio of independent directors in Chinese SOEs is 35.6%. The supervisory board size of Chinese SOEs ranges from 1 member to 13 members, with an average of 4.394. Finally, the size of Chinese SOEs ranges from 19.256 to 27.955, with an average of 22.156. The average leverage proportion of Chinese SOEs is 0.527, the smallest leverage ratio is 0.05, and the largest leverage ratio is 0.955.


**Table 3.** Descriptive statistics.

Table 4 provides Pearson correlations between the continuous explanatory variables in the multivariate regressions. The correlation coefficient between OWNCON and Tobin Q is 0.053, which is significant at the 1% level. The finding indicates a positive correlation between ownership concentration and firm performance. We also find a negative correlation between STAOWN and Tobin Q, as the correlation coefficients between the ratio of state ownership and Tobin Q is 0.089, and significant at the 1% level. Table 4 shows a positive correlation between the ratio of female directors and Tobin Q and a negative correlation between BSUP, SIZE, LEV, and Tobin Q.

#### *6.2. Main Analysis and Discussion*

As discussed above, the main aim of this study is to investigate the relationship between two characteristics of ownership structure (concentrated and state ownership) and firm financial performance. Table 5 shows the multivariate regression findings between the variables and Tobin Q. The two main variables of interest are OWNCON and STAOWN. The first column presents the results of the first two hypotheses (H1 and H2), while columns 2 and 3 show the results of H3 and H4. Lastly, column 4 presents the findings of the four hypotheses using MTB as an alternative proxy. Along with H1, the coefficient of OWNCON

is positive and significant (β<sup>1</sup> = 0.484) at the 1% level. The results imply a significant positive impact of ownership concentration on corporate value. This result agrees with the literature, supporting the value or benefits that ownership concentration can bring about, especially the exercise of better monitoring of management, which is consistent with the agency perspective [18,65,121]. This result also agrees with some studies performed in different contexts, such as Omran [70] in Egypt and Gaur et al. [21] in New Zealand. However, this finding is different from other studies that perceived ownership concentration negatively, such as Aboud and Diab [122]. This inconsistency invited us to address the association between ownership concentration and firm performance concerning the context specificities, such as the major economic events in a particular context (e.g., the stock split reform in China), as explained below.

**Table 4.** Spearman correlation analysis.


Note: Values with asterisks \*, \*\*, and \*\*\* indicate significance at the 10%, 5%, and 1% levels, respectively.


**Table 5.** Regression analysis.

Robust *t*-statistics in brackets. Values with asterisks \*\* and \*\*\* indicate significance at the 5%, and 1% levels, respectively.

Regarding H2, the coefficient of STAOWN (= −0.390 \*\*) is negative and significant at the 5% level, suggesting that when the proportion of state ownership rises by one unit, the Tobin Q of the enterprise declines by 0.390 units. This finding is consistent with the extensive international evidence in the literature that perceived state ownership has negative influences on corporate performance e.g., [26] in Russia, 93 in Indonesia, [24]. This finding stresses the idea that significant levels of state ownership are related to ineffective monitoring [96], weak governance, and lower managerial quality [29]. This could increase the agency conflict between owners and management or between large and minority owners [52]. Further, this result agrees with the suggestion that state owners pay more attention to politics than economic goals, which negatively affects the financial performance of the state-owned companies [29,98,99].

Regarding H3 and H4, this research examines the effect of the Chinese 2005 stock split reform on the association between ownership structure (concentrated and state ownership) and firm financial performance. We introduced two interaction terms (*REFORM* \* *OWN-CON* and *REFORM* \* *STAOWN*) to test how the reform shapes the positive impact of ownership concentration on firm financial performance and the negative effects of state ownership on corporate financial performance. Consistent with H3, we find that the coefficient of the interaction (*REFORM* \* *OWNCON*) is positive (0.417 \*\*\*) and significant, indicating that the positive relationship between ownership concentration and corporate financial performance has increased following the split-share structure reform. This finding supports the studies that see the economic potential of the stock split reform e.g., [38,46,47]. Further, it supports the few studies in the literature that indicated the possible impacts of the stock split reform on the ownership concentration–firm performance relationship e.g., [39,123]. Further, this finding supports interpreting the association between ownership concentration and firm financial performance to context-specific features and events e.g., [16,20,28] For example, Lepore et al. [20] and Altaf and Shah [16] highlighted the importance of investor protection in understanding the ownership concentration–firm value relationship. Nguyen et al. [28] noted that the positive impact of ownership concentration on firm value is more pronounced in ineffective (rather than well-established) governance structures.

Moreover, our analysis shows that the split-share structure reform also shaped the effect of state ownership on firm financial performance. Table 5 indicates that the coefficient of *REFORM* \* *STAOWN* is positive (=0.577 \*\*\*) and significant at the 1% level, suggesting that the reform has mitigated the negative impact of state ownership on firm financial performance. This positive finding agrees with the literature, indicating that the stock split reform could play a positive role in state-owned enterprises [39]. In particular, Jiang et al. [39] noted that government-owned shares following the stock split could positively influence corporate performance. Further, this finding supports the context-dependent nature of the SO– firm value relationship [6,108,110]. In particular, Borisova et al. [110] and Estrin et al. [108] highlighted the importance of interpreting findings concerning the effectiveness of the country's legal system. Wei and Varela [6] and Hanousek et al. [111] linked the findings of the relationship between SO and firm performance to the value of the recently adopted economic reform (privatization) programs in China and the Czech Republic, respectively.

Hence, collectively, the findings of H3 and H4 imply that the split-share structure reform has improved the quality of CG and, therefore, the performance of Chinese firms, which supports the context-dependence of the governance–firm value relationship [28,66,70,106]. Hence, this finding highlights the importance of understanding and examining the ownership– firm financial performance relationship concerning the company's institutional context see [58,90,91,123–125].

Regarding the control variables, we observed that the SIZE and LEV are significant and negative, suggesting that firm financial performance is negatively related to financial leverage and corporate size. All other control variables are insignificant.

### **7. Conclusions**

This research investigated the association between corporate governance structures (specifically concentrated and state ownership structures) and company financial performance by bringing new and extensive evidence from an emerging market. Further, this research examines the impact of the recent stock split reform in China on the ownership characteristics–firm financial performance relationship. We found that ownership concentration is positively and significantly related to company performance. However, state ownership has a significant negative effect on firm value. Regarding the impact of the stock split reform on the ownership characteristics–firm financial performance relationship, we observed that the stock split reform has a significant and positive impact. In particular, the positive relationship between ownership concentration and corporate financial performance has increased following the split-share structure reform. The negative association between state ownership and corporate financial performance has been mitigated following the split-share structure reform.

This research contributes to the previous studies in some respects. Firstly, it brings evidence from an emerging market where a few studies have been conducted e.g., [17,28,35]. Investigating contexts such as this is important to understand how context specificities (including major economic events such as privatization programs and other economic reform programs) could bring remarkable results concerning the ownership characteristics– firm financial performance relationship see, e.g., [16,20,28,70,107].

Secondly, it contributes to the limited studies on the impact of ownership characteristics on firm financial performance in developing markets such as China, particularly the inconclusive evidence reported in the literature. Although some studies are concerned with concentrated ownership—in China, there was no clear evidence of the impact of ownership concentration on Chinses companies' performance. The same also applies to SO, where variant impacts are also reported, such as Qi et al. [59], Wei et al. [49], Gunasekarage et al. [33] on the negative side, and Sun et al. [41], Tian and Estrin [99], and Le and Buck [36] on the positive side.

Finally, to the best of our knowledge, this study presents newer and more precise evidence on the economic implications of the recent economic events in developing markets, such as the stock split reforms in China, for the companies' performance. The previous studies focused on the financial impact of these events, such as their effects on firm performance [38,46,47]. However, no clear and recent evidence was presented concerning their impacts on the ownership structure–firm financial performance relationship [38,39]. This finding highlights the importance of considering the impacts of the major economic events in the country on the examined relationships, especially the CG–firm financial performance relationship. This study agrees with the idea that the CG–firm performance relationship is not a universal one. Instead, it is dependent on the contextual features and economic environment under examination. This is also evident by the contrasting and unclear results concerning the ownership structures–firm performance relationship reported in the literature. For instance, Filatotchev et al. [17], Liljeblom et al. [26], Aguilera et al. [24], and Cuervo-Cazurra and Li [25] found a negative relationship. In contrast, Wu and Cui [34], Gompers et al. [22], Sami et al. [23], Gaur et al. [21] found positive relationships; and Omran et al. [80], Pham et al. [85], and Yasser and Al Mamun [83] did not report any relationship.

The study presents implications for regulators, investors, and researchers concerned with examining developing markets such as China. Our results imply that the institutional reform of the stock markets in developing countries could benefit the investors through enhancing firm performance. The results suggest that the reform of the stock market could shape the effect of ownership structure on corporate performance in a valuable way for effective capital allocation. In particular, it can reduce the incentive of large shareholders with monitoring power of a company's executives to pursue their interests against other investors. Consequently, it enhances the incentive alignment effect, as large shareholder interests are associated with the firm's performance. Furthermore, our findings imply that the stock market reform could augment the desire of state shareholders to oversee management and ensure they act to maximize shareholders' interests and, therefore, enhance firms' financial performance. Thus, collectively, economic reforms, especially those focusing on the stock market such as the split-share structure reform, can improve the quality of CG, which is pivotal to the progress of the country's economy.

However, despite using ten years of panel data, our study contains far fewer observations prior to the reform than what is considered after the reform due to data availability. Therefore, future research may address a more balanced dataset or, alternatively, examine the long-term impact of the stock split by using recent years.

**Author Contributions:** Conceptualization, A.A. and A.D.; methodology, A.A.; software, A.A.; validation, A.A. and A.D; formal analysis, A.A.; investigation, A.D.; resources, A.A.; data curation, A.A.; writing—original draft preparation, A.D.; writing—review and editing, A.D.; visualization, A.A.; supervision, A.D.; project administration, A.D.; All authors have read and agreed to the published version of the manuscript.

**Funding:** This research received no external funding.

**Acknowledgments:** The authors would like to thank Prince Sultan University for their support.

**Conflicts of Interest:** The authors declare no conflict of interest.
