An Empirical Examination of Endogenous Ownership in Chinese Private Enterprises

There is debate over the relationship between ownership structure and firm performance. Most existing studies look at established listed companies in developed countries, in which the market mechanism is well developed. Meanwhile, the relationship between ownership structure and firm performance in small and medium enterprises (SMEs) in transition countries has been largely ignored. Drawing on endogenous ownership theory, this paper explores the impact of ownership structure on firm performance in SMEs in the context of an embryonic market environment. Using survey data for private firms in Shantou City, China, we find that ownership variables do not have a statistically significant relationship with firm performance. We examine the determinants of changing ownership shares and find that firm size and business instability are related to changes in ownership shares. Our findings support the central tenets of endogenous ownership theory and reveal factors that may lead to the change of ownership structure among SMEs in an emerging market. JEL classification: G30, G32, L20