Behavioural differences among Chinese firms from the perspective of earnings determination

Author name: 
Xin Meng
Frances Perkins

Firms with different ownership structure behave differently. Currently there are three major ownership structures in China’s industrial sector: state enterprises, collective enterprises, and private enterprises Market-oriented economic reform has given great autonomy to firm managers in terms of decision making. Nevertheless, properties are still owned by different levels of governments in the case of the state and the collective sectors. This may cause a separation between the function of decision-making and riskbearing, thereby inducing firms to pursue the objectives of maximising income per capita. To understand the behavioural differences among firms under different ownership structures, this paper analyses firms’ earnings determination behaviour using a data set comprised of all three sectors. The main findings are that the state and the collective sectors behave more like Labour Managed Firms, in that they try to maximise income per worker within the firm instead of profit, whereas the private sector behaves more like capitalist firms. Further, firms with a higher degree of risk-bearing tend to pay more attention to their economic and financial performance when making decisions on how to share profit.

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