The Restructuring of Ownership and Governance in China: An Empirical Study of the Shareholding Reform

Using a firm -level survey data set, we examine the factors that have shaped the restructuring of ownership and governance among China's state-owned enterprises (SOEs) in its recent shareholding reform. We find that the pace and form of the restructuring are influenced by path-dependent variations in the transaction cost of finding the "right price" for re-arranging property rights. While the shareholding reform has brought about some substantive changes, we also find significant government involvement in the ownership and governance of restructured enterprises, which we view as a transitional phenomenon rather than as a failure of the reform. We argue that the gradual pace and the halfway separation of the government from enterprises may be inevitable in the initial stage when institutional environments and socialist legacies impose serious constraints on the restructuring.