The class of shareholdings and its impacts on corporate performance: a case of state shareholding composition in Chinese publicly listed companies.

Does the class of shareholdings matter for corporate performance? To address the question, our paper starts by classifying shareholdings on the basis of the principle of ultimate ownership. At present, the shareholding structure of Chinese quoted companies is state-dominant in that 84% of public companies ultimately are found controlled by the state, compared with 16% of non-statecontrolled ones. In contrast to our identified shareholdings, the Chinese official shareholding record only reports the state and the legal person share classes that are inevitably ambiguous for the identification of ultimate owners of public corporations, which in turn has misled many previous studies in assessing the impact of shareholding classes on performance. Based on our newly established shareholding classes, we make a nested performance comparison between these different classes, such as the state direct control versus the state indirect control, and find significant evidence from the Chinese data that the class of shareholdings does matter for company performance. The least inefficient shareholding class is the holding companies that are wholly listed and have focused industrial business through the state indirect control of the downstream public corporations. This finding provides ground for us to think more about how the corporate control mechanism could be further improved in China’s current corporate governance reform.