上市是国企的出路吗

1 Is Public Listing a Way Out for State-Owned Enterprises? The Case of China* Xiaozu Wang Department of Economics and Finance City University of Hong Kong Lixin Colin Xu Development Research Group The World Bank Tian Zhu† Division of Social Science Hong Kong University of Science and Technology September 2001 ___________________________ * The research for this paper was funded by grants from the Hong Kong Research Grants Council (No. RGC.HKUST6053/98H and No. DAG.HKUST00/01.HSS09). † Corresponding author. Division of Social Science, Hong Kong University of Science and Technology, Clear Water Bay, Hong Kong. Tel: (852) 2358-7834. Fax: (852) 2335-0014. Email: SOTIMZHU@UST.HK. 2 Is Public Listing a Way Out for State-Owned Enterprises? The Case of China ABSTRACT Public listing is a key and unique reform measure for large state-owned enterprises (SOEs) in China. Using a panel data set that contains both pre- and post- listing financial and ownership information on publicly listed firms in Shanghai and Shenzhen Stock Exchanges, we explore the effects of public listing in China. We find that using public listings as a means to reform SOEs has not worked wonders: company performance in the post-listing years are sharply lower than their levels in both the pre- listing years and the initial public offering years. Moreover, the effects of public listing on performance are not significantly affected by the percentage of state shares or of the total shares held by top shareholders, but are positively correlated with a more balanced ownership structure among these shareholders. JEL Classification: P31, P27, G30 Keywords: state-owned enterprises, public listing, corporatization, reform, China 3 1. Introduction Unlike most formerly socialist countries, China until recently avoided privatizing state-owned enterprises (SOEs) and instead sought to reform them through piecemeal measures, such as by increasing managers’ decision-making autonomy, introducing financial incentives, and bringing in performance contracts between the government and SOEs (Naughton, 1995; Shirley and Xu, 2001). These reform measures were accompanied by improved productivity of SOEs during the 1980s (Groves et al., 1994; Jefferson, Rawski, and Zheng, 1994; Zhuang and Xu, 1996; Li, 1997). However, the performance of Chinese state industry has since steadily deteriorated (Lardy, 1998). Faced with mounting losses in the state sector, in the early 1990s the Chinese government began to shift the focus of SOE reform to privatization of small SOEs and the corporatization of larger ones (Cao, Qian and Weingast, 1999; Lin and Zhu, 2001). The corporatization strategy aims to turn SOEs from public sole proprietorships controlled by industry-specific government agencies at various administrative levels into shareholding companies that are, at least in theory, independent in decision-making and diverse in ownership (Lin and Zhu, 2001). Public listing of SOEs in the domestic stock exchanges is a key measure of corporatization. Indeed, the vast majority of China’s publicly listed companies are formerly state-owned or state-controlled firms, mostly large and better-performing ones.1 Given the importance of public listing as a means to reform 1 Our data set, to be described later, does not contain information about the ownership types of the share- issuing firms. Based on our interviews with officials of China Securities Regulatory Commission, about 75% of listed companies are formerly state-owned. Another 10% are formerly shareholding companies that mostly had significant shares held by SOEs. Only less than 10% of listed companies are formerly private- owned firms or foreign-invested firms, which in most cases had SOEs as their joint venture partners. 4 large SOEs in China, it is surprising that there are virtually no systematic studies on the effects of public listing in the country.2 In this paper, we attempt to fill this void. Recent years have seen two strands of surging empirical literature on the impact of public listing or initial public offering (IPO) on company performance (Roell, 1996; Megginson and Netter, 2001). The first strand of literature focuses on developed countries, particularly the United States, and finds that public listing of privately-held companies tends to worsen company performance. Ritter (1991) finds that IPO firms underperform a set of comparable firms matched by size and industry. Laughran and Ritter (1995) find that both IPOs and seasoned equity offerings significantly underperform relative to non-issuing firms for five years after the offering date. Jain and Kini (1994), Degeorge and Zeckhauser (1993) and Mikkelson, Partch, and Shah (1997) find that the performance of IPO firms—measured by return on assets (ROA) or return on sales (ROS)—declines in the first few years following the offering but do not decline further afterwards. The above findings raise the question of why IPOs might worsen performance. One explanation is the agency cost. According to the agency theory set out by Jensen and Meckling (1976), public listing may heighten the conflicts of interest between managers and shareholders by increasing ownership dispersion, and the resulting higher agency costs lead to reduced performance. An empirical implication of the theory is that post- IPO performance should be positively correlated with managerial ownership. This 2 Xu and Wang (1998) study the impact of ownership concentration and the share of state ownership on the performance of listed companies in China, but their study does not deal with the issue of whether or not public listing itself improves company performance. Chen, Firth and Kim (2000) use a sample of about 330 IPOs in China between 1992-1995 to compare the differences in performance between A shares and B shares, which are issued to domestic and foreign investors respectively. However, they also do not address the issue of how public listing affects company performance. 5 hypothesis is partially supported by Jain and Kini (1994) and Holthausen and Larcker (1996) who find a positive relationship between performance and ownership stakes retained by pre-offering shareholders or insiders around IPOs.3 Another explanation for the performance decline after listing is that the pre-listing performance may be exaggerated. For example, offering firms may window-dress their accounting figures prior to going public. They may also time the offerings to coincide with periods of unusually good performance or favorable market valuations. Consequently, the over-stated pre-IPO performance would result in a superficial decline in post-IPO performance (Laughran and Ritter, 1995; Pagano, Panetta, and Zingales, 1998). The second strand of literature on public listing deals with share issue privatization, which uses public listing to divest the government’s ownership in SOEs.4 Share issue privatization has been one of the major forms of privatizing SOEs around the world since the 1980s. In summarizing the long-run performance of share issue privatization, Megginson and Netter (2001) state that, “the average long-term, market- adjusted return earned by international investors in share issue privatizations is economically and significantly positive.” While public listings in developed countries either turn a privately-held company into a more widely-held public company, or transform an SOE into a private-owned public company, public listings in China are largely used to corporatize SOEs. China’s share issue corporatization aims to transform an SOE into a modern-form corporation that 3 However, Mikkelson, Partch, and Shah (1997) find the relationship between a direct measure of managerial ownership stakes and post-listing performance to be statistically insignificant. 6 features both significant state and significant non-state institutional shareholders in addition to small individual shareholders. If public listings of private firms worsen company performance in developed capitalist economies and share issue privatization of SOEs improves company performance, it is an intriguing question as to whether public listing would improve or worsen company performance in the intermediate case of share issue corporatization. SOEs’ low efficiencies are often attributed to a lack of managerial autonomy, soft budget constraints and the agency-incentive problem (Groves et al., 1994; Qian, 1996; Qian and Roland, 1996). The central goal of corporatization, including public listing, is to establish a "modern enterprise system" in China featuring corporate governance structures that separate the government from enterprises. The separation is deemed necessary both for enterprises to achieve full autonomy in structural and operational decisions and for the government to limit its liabilities to the enterprises, hence hardening the budget constraints. It is also hoped that corporatization will improve managerial incentives by installing a more clearly defined structure of rights and responsibilities and by introducing shareholders with incentives and abilities to monitor the managers. Another objective is to raise capital for SOEs and reduce their high debt to asset ratios by increasing direct finance through selling equity ownership stakes to the public as well as employees. If the above objectives have, at least in part, been achieved, we would expect that post-listing performance should exceed the pre-listing level and that debt-asset ratios should decline whereas capital expenditure should grow at a faster rate after listing. 4 For an excellent survey of literature on share issue privatization, see Megginson and Netter (2001) and the literature cited therein. 7 Given China’s weak accounting and disclosure system, it would not be surprising if most of the firms’ pre-listing performance is over-stated. In that case, we might expect post- listing performance to be lower than the pre-listing level.5 However, if public listing helps in establishing better corporate governance, improving managerial incentives and loosening firms’ financial constraints, then company performance after the IPO year should improve over time and be better than that in the IPO year. In this paper, we use a panel of pre- and post-listing data of all publicly listed companies in China to investigate the actual effects of public listing against its intended effects. We find that, overall, public listings as a means of reforming SOEs have not worked wonders. Company performance from the first post-listing year onward is sharply lower than the levels in both the pre-listing years and the IPO years. Moreover, the effects of public listing on performance are not significantly affected by the percentage of state shares or of the total shares held by top shareholders, but are positively correlated with a more balanced ownership structure among these shareholders. While the debt level is reduced initially after listing, it converges to the pre-listing level over time. Moreover, rather than increasing capital expansion, public listing actually reduces it. In the following section, we provide some background information on public listings and the development of the stock market in China. Section 3 describes the data, defines the variables to be used in the regression analysis and presents some summary statistics. Main findings are reported in Section 4. The last section concludes. 5 On the other hand, listed companies also exaggerate reported earnings (Burgstahler and Dichev, 1997). Earnings management is a more serious problem in China than in developed countries. It offsets at least some, if not all, of the exaggeration of the pre-listing performance. 8 2. Public Listings in China China’s stock markets opened in 1990 with the establishment of Shanghai Stock Exchange (SHSE) when eight firms first went public. In the following year, Shenzhen Stock Exchange (SZSE) was also established. The following decade witnessed phenomenal growth in the stock market. By the end of 2000, the SHSE Composite Index grew to 2073 from 100 on its base day of Dec. 19, 1990, and the SZSE Composite Index to 635 from 100 on its base day of April 3, 1991. (Insert Table 1 here) Table 1 outlines the development of China’s stock market. At the end of 2000, 1088 firms were listed on the two exchanges, with a total market capitalization close to 5 trillion yuan (about US$0.6 trillion6), or 54% of China’s GDP. The stock market has also become an increasingly important means of raising capital for China’s SOEs , resulting in more than 480 billion yuan new equity issuance in 2000 alone. China’s publicly listed companies are allowed to issue four types of shares. The predominant type is A shares; these are listed in China, denominated in RMB and restricted to domestic investors. B shares are also listed in China and denominated in RMB, and until June 2001 their purchase was restricted to foreign investors using foreign currency. The two other types of shares are H shares and N shares, which are issued in Hong Kong and the United States respectively by A-share or B-share issuing firms. While most companies only issue A shares, the majority of B-share issuing companies 6 The current exchange rate is roughly 1 USD = 8.2 yuan. 9 also issue A shares. By the end of 2000, among the 114 B-share issuing firms only 28 issued B-shares exclusively; the rest also issued A shares. All the 19 H-share firms also issued A-shares. The shares of listed companies are classified into five categories: state-owned, legal person (institution) -owned, employee-owned, individual-owned, and foreign- owned. The first two categories of shares cannot be traded on the stock exchanges, and their transfer requires special approval from the China Securities Regulatory Commission (CSRC). IPO firms are required by law to hold at least 35% of the total shares issued, and 25% of the total shares must be individual- or foreign-owned. Large shareholders are usually state or legal persons. The distinction between state and legal person shareholders is in many cases superficial. State shares are held by government bodies such as state asset management agencies, or institutions authorized to hold shares on behalf of the state such as a wholly state-owned investment company. Legal person shares are shares held by any entity or institution with a legal person status, including an SOE or a company controlled by an SOE. We do not have precise information about the identity of legal person shareholders; but it is safe to say that state ownership, directly or indirectly, accounts for a significant portion of all the legal person shares. Employee-owned shares are issued to employees of the issuing firm and are allowed trading only three years after the IPO if the firm can get CSRC’s approval. In China, the question of whether a company can make an IPO is determined largely by an administrative process rather than the market process seen in developed economies. When an SOE wants to go public, it must seek permission from the local government or/and its affiliated central government ministries, which receive an IPO 10 quota from the CSRC.7 Under this quota system, how many and which firms go public in each year depends not only on the quality of the firm and macroeconomic conditions but also the availability and distribution of the quota. All firms in our sample became listed under the quota system. 3. Data, Variables and Summary Statistics The data for this study is a panel of financial and ownership data of all companies listed on the SHSE or SZSE from 1990 to June 2000. There are 1057 firms in our initial data set. Missing values or invalid data entries reduce our sample to 992 firms. A majority of the firms deleted were listed before 1994 and lack pre-listing data. The data was purchased from a major financial information service company in China. A novel feature of our data set is that it contains pre-listing information. The current law requires IPO firms to provide three years of audited accounting data prior to listing. However, since the CSRC was established in 1992, two years after the first stock exchange was established, and major disclosure rules were only issued in 1993 and not immediately strictly enforced, the disclosure standard was not consistent during the first half of 1990s. As a result, firms listed in or before 1994 have incomplete pre-listing as well as some post-listing data. Nonetheless, the majority of firms in our data set have complete pre-listing financial data, which allows us to compare their pre- and post-listing performance. 7 There are no explicit rules governing quota allocations. Information on how much quota is issued to which agencies is hard to obtain. But based on our interviews with investment bankers in China, we find that quota may even be allocated to non-economic organizations such as the National Union of Women and the Communist Youth League. In 2000, the government decided to abandon the quota system and let the market determine which firms can go public. The first non-quota IPO appeared in 2001. 11 Another feature of the data set is that it is free of survival bias that may cause problems in studying listing effects on company performance. No firm in our data set ceased operations or was de-listed after going public. Although China’s bankruptcy law was passed in 1986, listed companies can usually count on the government or state- owned banks to bail them out of financial difficulties and hence avoid bankruptcy. Also no publicly listed firms returned to private ownership in our sample period. Only in 2001 did we observe the first incidence of de-listing. In our regression analysis, we follow the existing literature in choosing our dependent and explanatory variables. This allows us to highlight the similarities as well as differences in the effects of public listing in China in comparison with countries that have been previously examined in the literature. Definitions of the dependent and explanatory variables to be used in our regression analysis are listed in Table 2. (Insert Table 2 here) We report summary statistics in Table 3 for both the full sample and a sub-sample of balanced panels. The full sample is unbalanced, including all observations that are used in at least one of the subsequent regressions. For each variable the balanced panel consists of firms that have valid observations for the variable from one year before IPO (t = -1) to four years after IPO (t = 4). The IPO year is denoted by t = 0. The balanced panel is constructed only for the period from year –1 to year 4 because a more stringent requirement, say from –1 to 6, would result in too small a sample: only 291 firms were listed in China by the end of 1994, and the rest had fewer than six years of post-listing 12 history by the end of our sample period. Since it is useful to know what went on for