OPTIMAL EQUITY STRUCTURE AND VALUE-CREATING ABILITY: A THEORETICAL ANALYSIS OF CHINA'S MIXED OWNERSHIP ENTERPRISES

Songling Yang, Beijing University of Technology, Beijing, China
Dawei Sun, Beijing University of Technology, Beijing, China
Tingli Liu, Beijing University of Technology, Beijing, China

Published in

JOURNAL OF INTERNATIONAL FINANCE STUDIES
Volume 17, Issue 2, p29-40, December 2017

ABSTRACT

Based on the perspective of the equity theory, this study analyzes the influence of the china's state-owned capital investment on the domestic listed enterprise's value-creating ability. To maximize the value-creating ability, the optimal ownership structure model for the mixed ownership enterprises is also discussed. This study finds that, firstly, the state-owned capital will achieve the social benefit goal by sacrificing the return of the reinvestment. Therefore, the effect of the rent dissipation should be taken into account while evaluating the investment efficiency of the state-owned capital and the performance of the invested enterprises. Secondly, the investment of state-owned capital will bring additional benefits to the listed enterprise, which will enhance the creditor's confidence, reduce the cost of the enterprise creditor's capital and increase the financial flexibility. Thirdly, under the background of the mixed ownership reform, the invested enterprise's value-creating ability is closely related to the proportion of state-owned capital and private capital. Maximizing the utilization of the additional benefits from both state-owned capital and private capital will optimize not only enterprise's performance but also its value-creating ability.

Keywords

Mixed Ownership, State-owned Capital, Rent Dissipation, Value-creating Ability


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