Disproportionate ownership structure and IPO long-run performance of non-SOEs in China

- Poor post IPO performance of non-SOEs is mainly caused by ownership control wedge.
- Firms with the wedge reduce adjusted buy-and-hold post IPO performance by 30%.
- Firms with the wedge have higher frequency of value-destroying related party transactions.
- Firms need to improve corporate governance such as disproportionate ownership structure.

This paper examines the relationship between ownership structures and IPO long-run performance of non-SOEs in China. Although non-SOEs underperform the market in general after IPO but the poor performance is mainly caused by the IPOs with ownership control wedge. Non-SOEs with one share one vote structure outperform those with control-ownership wedge by 30% for three years post-IPO performance in adjusted buy-and-hold returns. Non-SOEs with control-ownership wedge have higher frequency of undertaking value-destroying related party transactions. These findings suggest that non-SOEs need to improve corporate governance such as disproportionate ownership structure to better safeguard the interest of long-run shareholders.