Behavioural Differences among Chinese Firms —From the Perspective of Earnings Determination

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.