Challenges in the Era of Globalization - iaabd

Proceedings of the 12th Annual Conference © 2011 IAABD
one feature of central SOEs, which may imply the sufficiency of resources, space to allocate the resources
at some level. Because of the large range values, this study would take the natural logarithm of this
variable.
We thus constructed the model as follow:
β + β + β + β + β + β
(2)
+ β + β + β + � � ����������
�����
����������
= � �
Where V is the dependent variable. The dependent variables are separation of control right and cash flow
right (Sep); Share Proportion of Largest Shareholder (LSshare); the proportion of independent directors
(IDR); dummy variable to show Whether the chairman and general manager is the same person, which
takes the value of 1 if it is not the same person, and 0 if it is (CM); the natural logarithm of top3
executive's compensation (LnMincome); management equity incentives, which takes on the value 1 if the
company has equity incentive program and 0 if it has not (Mshare); Asset-liability ratio (ALR); the natural
logarithm of assets value (LnSIZE).
V is the enterprise value, denoted by Tobin's Q value. Tobin’s q is usually defined as the value of the firm
(equity and debt claims) scaled by the replacement value of the firm’s assets. In the corporate finance
literature replacement value of the firm’s assets is often approximated by the book value of assets. Also,
because China's bond markets are underdeveloped, the main business financing channel is the stock
market and bank lending, and hence we assume the market value of debt is basically the same as the book
value of the debt.
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Data
By central SOEs owning internal capital market, we mean diversified central SOEs or the central SOEs
hold more than one listed companies ultimately. A diversified central SOE is judged by whether the firm
operates in more than one industry, as SASAC’s business scope report of central SOEs. Listed companies
owned by central SOEs with internal capital market are not only refer to the listed firms on the Shanghai
Securities Exchange (SHSE) and Shenzhen Stock Exchange, but also the firms listing on the Hong Kong
and other foreign stock exchanges. In those central SOEs, the headquarter may allocate resources between
subsidiaries or between the different industries. In addition, although all the central SOEs are State
holding and supervised by the same SASAC, there’s no resource allocation among the central SOEs and
no need to turn profit over to the SASAC. Hence, the internal capital we refer is only the internal capital
market inside the central SOEs.
One primary level of agency conflicts in central SOEs is between the central SOEs and the central
government represented by SASAC. SASAC (the state-owned Assets Supervision and Administration
Commission) was formed on March 10, 2003. After the initial establishment, SASAC conducted a series
of drastic reform in central SOEs. We hence select the data after January 1, 2004 in order to avoid
inconsistency of data and background.
We assume the central diversified SOEs as reported by the SASAC report, and the firm holds more than
one listed companies own internal capital market. We find surprisingly almost all the central SOEs are in
line with the requirement. We then collect financial data of listed companies, whose final control are
central SOEs owing ICM. Next, we removed some listed firms that have the features such as negative
equity, data missing or major business is finance service. We finally got the total of 130 qualifying listed
companies who belong to the part central SOEs owning ICM.
The China Stock Market and Accounting Research (CSMAR) database and the public official data from
SASAC serve as the primary source for our financial data.
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