PROPUESTA DE MEJORA DEL PROCESO OPERATIVO

8.1.1 Managerial Ownership Variables

Table 8-1 presents the descriptive statistics of managerial ownership and the changes from before and after the IPO. Panel A shows that Chinese firms report a very low proportion of shares owned by managers. An average proportion of managerial ownership is 0.008% (t statistic = 1,02) in the Y-1 year, and it declines to 0.004% (t statistic = 1.57) in the Y+2 year and further to 0.002% (t statistic = 1.68) in the Y+4 year. A further examination on the sample IPOs shows that there are only 5 firms (2% of the sample) reporting to have some of their shares owned by managers prior to the IPO year, and most firms (98%) do not even have a share of ownership held by managers. Since managers barely own any stocks in the pre-IPO firms, it is expected that managerial ownership in Chinese IPOs has little effect on operating performance of IPOs and its long-run variation subsequent to the IPO.

Panel B presents that the changes in managerial ownership from the pre-IPO year to the post-IPO years. In terms of mean tests, there seems a slight decline (-0.004%) in managerial ownership from the Y-1 year to the Y+1 year, however, the

test result is statistically insignificant (t statistic = -1.00). The declines from the Y-1 year to the Y+2 year, Y+3 year and Y+4 year are very small (-0.000%, -0.001%, and 0.000% respectively) and statistically insignificant (t = -0.27, -0.75 and 0.22 respectively). In terms of median tests, it is clear that there is no change in managerial ownership over time, since the decline is equal to zero.

Table 8-1 (Panel B) clearly shows that there is no significant evidence of a decline in managerial ownership from before to after the IPO. It implies that managerial ownership dispersion hypothesis can not explain the decline in post-IPO operating performance relative to the pre-IPO level, since Jensen and Meckling (1976) conjecture that operating performance decline from before to after the IPO is positively associated with contemporaneous managerial ownership dispersion over the same time. However, managerial ownership in China, on average, does not significantly disperse from before to after the IPO. Furthermore, it is observed that some IPO firms (9 firms, 3.7% of the sample) report their managerial ownership to increase in the post-IPO period relative to the pre-IPO level, mainly because these firms implement managerial shareholding incentive schemes subsequent to the IPO, in order to align the interest of managers in line with shareholders.

As shown in Table 8-1, it is conjectured that managerial ownership and its change from the pre-IPO period to the post-IPO period is very unlikely to have a significant effect on corporate operating performance changes from before and after the IPO So, in this study, it is hypothesised that there is NO relation between operating performance changes from before to after the IPO and managerial ownership changes over the same period. A further regression analysis will follow to support this conjecture.

Table 8-2 presents the descriptive statistics of control variables: Size, Age, Capital expenditure (and ACapital expenditure). Government subsidy (AGovernment subsidy) and ownership and governance variables (Ownership type and Ownership concentration and Board composition).

Panel A shows the natural logarithm of total assets of IPO firms before and after the IPO. The log form of total assets is used to alleviate the possible impact of outliers. Panel A indicates that the figure (natural logarithm of total assets) ranges between 8 and 11, and it seems to increase slightly from the pre-IPO period to the post-IPO period, presumably because the business scale of IPOs is growing over the period. Importantly, the means and medians are shown to be around the value of 9, and the standard deviations remains to be constantly small. In this regression analysis, it is hypothesised that smaller IPOs are more likely to suffer a large decline in reported operating performance from before to after the IPO.

Panel B shows the age of IPO firms, which is measured as the number of years between the establishment year and the IPO year. It is shown that, by the end of the IPO year, the average age of IPO firms is 4 years old (t statistic = 16.10), and the median value is 3 years (z statistic = 8.69). It is indicated that IPO firms, on average, do not have a long historical operating record prior to the IPO, mainly because China’s market-oriented economic reform is launched as late as the early 1990’s. In this regression analysis, it is hypothesised that IPOs of start-up firms are likely to suffer a larger decline in reported operating performance from before to after the IPO.

Panel C describes asset-scaled capital expenditure before to after the IPO. It is shown that the mean and median values of capital expenditure seem to fluctuate substantially around the IPO, going up from 6.93% (t statistic = 4.12) and 2. 02% (z statistic = 7.17) respectively in Y (-1) year to 17. 40% (t statistic = 7.43) and 9. 79%

(z statistic = 8.54) respectively in the IPO year, but soon drop to 0. 43% (t statistic = 1.98) and 0. 00% (z statistic = 5.78) respectively in Y (+1) year. From Y (+2) year onwards, the figure rebounds to a level higher than the pre-IPG level; for example, 9.72% (t statistic = 10.07) and 6.64% (z statistic = 8.79) respectively in Y (+2) year and goes lower to 7.91% (t statistic = 8.34) and 4.65% (z statistic = 5.90) respectively in Y (+4) year.

Panel D investigates the changes of capital expenditure from before to after the IPO. It shows that there is a significant decline from the pre-IPO year to Y (+1) year, in terms of both mean value (-6.50%, t statistic = -3.79) and median value (-1,81 % z statistic = 6.47) respectively. However, in any other years there seems to be a slight increase (2.77%, 0.89% and 0.96% respectively) in terms of mean values and the median values show a significant increase (3.26%, 2.33% and 1 95% respectively; z statistic = 4.34, 3.00 and 2.52 respectively). The amount of capital expenditures demonstrates capital investments of the firms, which may reveal future growth in operating performance. In this regression analysis, it is hypothesised that the change in capital expenditure from before to after the IPO is positively associated with the contemporaneous change in operating performance over the same period.

Panel E and F present asset-scaled government subsidy and its change from the pre-IPO period to the post-IPO period. Most Chinese IPOs are state-controlled firms, and they may receive government subsidies. Government subsidies should be recognised as a gain in income statements once received, so that the change in government subsidies would be able to impact companies’ long-run operating performance. Panel E shows that government subsidy is not very common before and after the IPO, since the median values constantly remain to be zero. The average figure in the Y (-1) year is 0.70% (t statistic = 5.12), but it goes lower in the post-IPO period (0.29%, 0.15%, 0.26% and 0.10% respectively, and t statistic =

3.86, 4.11, 3.98 and 3.74 respectively).

Panel F examines the change of government subsidy from before to after the IPO In terms of mean values, there is a significant decline (-0.4%, t statistic = -3.21) from the Y (-1) year to the Y (+1) year. The declines from the Y (-1) year to any other post-IPO years (Y+2, Y+3, Y+4) are of a same magnitude (-0.54%, -0.46% and -0.54% respectively; t statistic = -4.01, -3.11 and -3.64 respectively). In this regression analysis, it is hypothesised that government subsidy is supportive of abnormal high operating performance of IPOs, and the change in government subsidy from before to after the IPO may be positively related to the contemporaneous change in operating performance of IPOs over the period.

Finally, Panel G presents ownership structure and corporate governance characteristics of IPO sample at the end of the IPO year. It shows that 83.6% of the sample is controlled by the State directly or ultimately. The controlling shareholders on average retain a percentage of 62.47% in the ownership of sample IPOs at the end of the IPO year. Furthermore, an average percentage of 43.36% in the board seats is retained by controlled shareholders by the end of the IPO year. Panel G demonstrates that Chinese IPOs are mainly characterised as state-controlled firms, which are strongly controlled by controlling shareholders, due to concentrated ownership and concentrated board composition. In this study, it is expected that firms strongly manipulated by controlling shareholders are more likely to report a decline in operating performance from before to after the IPO, due to related party transactions concerns.