In one of the few published studies exploring private ownership of Chinese firms, CEIBS Professor of Accounting Yuan Ding, CEIBS Lecturer of Finance Hua Zhang, and Associate Professor at the University of Hong Kong Junxi Zhang investigate whether a company’s ownership structure impacts performance.

Their finding: yes, it does. “We find that family-owned firms perform better in terms of operating efficiency and profitability; moreover, their stocks are preferred by investors over those of (state-owned enterprises) SOEs,” the authors say. Published in Management International Review, the study emphasizes that family-owned firms tend to outperform SOEs in sectors that were liberalized earlier and have lower entry barriers.

The findings, which support the general consensus that China is increasingly reliant on private companies as an engine for economic growth and employment, have major implications for the nation’s continued economic development. “This has some important practical implications that should influence the direction of further economic policy developments in China,” say the authors. “In order to develop the Chinese economy and improve its efficiency, the government should allow the private sector to play a more active role, by providing a better regulatory environment and lowering the entry barriers related to technical, financial and political issues.”

The study also provides concrete evidence supporting earlier research which shows that the private sector has been rising rapidly and is now the primary force driving China’s impressive economic growth.