An empirical examination of endogenous ownership in Chinese private enterprises

The relationship between ownership structure and firm performance in small and medium enterprises (SMEs) in developing and transition countries has been largely ignored. Drawing on endogenous ownership theory, this paper seeks to understand the relationship between ownership structure and firm performance in SMEs in China, which represents an embryonic market environment. Using survey data collected from 189 private firms in Shantou City, China, we find that ownership variables do not have a statistically significant relationship with firm performance. We examine the determinants of changing ownership shares and find that firm size and business instability are related to changes in ownership shares. Our findings provide empirical support for the central tenets of endogenous ownership theory. As such, the results can be interpreted as meaning that even in a developing market environment, such as China, market forces are strong enough to dominate ownership structure change or that the market mechanism is functioning well in some areas of emerging markets.