Abstract

This paper uses stochastic frontier analysis (SFA) to examine whether and to what extent ownership structure and corporate governance affect firm efficiency in a sample of 744 publicly listed manufacturing firms in China during 1999 and 2006. The paper finds that firm efficiency decreases with state ownership of shares while increases with public and employee share ownership. In addition, the relationship between ownership concentration and firm efficiency is U-shaped. As the identity of the largest shareholder changes from government, government-controlled legal entity to other types of legal entity, firm efficiency significantly improves. However, the paper finds no evidence that board independence, supervisory committee structure and provincial market development affect firm efficiency. The results suggest that ownership structure is more important in determining firm efficiency than corporate governance mechanisms.

Key words: Firm efficiency, stochastic frontier analysis, corporate governance, ownership structure, China.