Richard W. Carney and Travers Barclay Child
Changes to the ownership and control of East Asian corporations between 1996 and 2008: The primacy of politics
Journal of Financial Economics | Volume 107, Issue 2 (Feb 2013), pages 494–513

Emerging economies will account for half of the world's GDP by the end of this decade. China will probably overtake the United States as the world's biggest economy around that time. This raises a question: is the world also witnessing a shift from the age of liberal capitalism to the age of state capitalism? From 2004 through 2009, 120 state-owned companies made their debut on the Forbes list of the world's largest corporations, while 250 private companies fell off it. State companies now control about 90 percent of the world's oil and large percentages of other resources.

We systematically document the rise of state ownership in East Asia. We observe that state ownership has increased in eight of the nine countries in our sample (Singapore is the exception). Moreover, this phenomenon is not restricted to domestic firms—we reveal many cases of foreign state ownership as well. At the same time that state ownership has increased, family ownership has declined, although it remains the dominant type of corporate ownership.

We investigate changes in the ownership and control structures of East Asia's largest publicly traded companies from 1996 to 2008. Focusing on Hong Kong, Indonesia, Japan, South Korea, Malaysia, the Philippines, Singapore, Taiwan, and Thailand, we gather data for 1,386 firms in 2008, which are among the largest 200 companies on each respective stock exchange. Ownership data for 1996 is provided by Claessens-Djankov-Lang (JFE 2000), and includes 1,606 listed firms in the same region.


We determine the identity of ultimate owners possessing more than ten percent of outstanding shares, and a number of other corporate governance characteristics. In particular, we classify firms according to ownership type: whether they are widely held or owned by a family business group, a widely held financial institution, a widely held corporation, the state, or a foreign government. Additionally, we calculate the level of voting and cash flow rights enjoyed by each owner, whether a pyramidal ownership structure is in place, and whether the executive has any relation to the largest owner of the firm.

Changes to ownership and control

Table 1 highlights key findings regarding changes in corporate ownership patterns. Across East Asia, family ownership has generally declined from 1996 to 2008, though it remains the most dominant form of ownership. Taiwan, Thailand, and Indonesia underwent the most pronounced shifts away from family business group control. By contrast, family groups in the Philippines actually strengthened their control; Japan, South Korea, and Singapore also saw no decline in the dominance of family ownership.

1: Control (%) of publicly traded companies in East Asia
Country Number of corporations Widely held Family State Widely held financial Widely held corporation Foreign State
Hong Kong 200 0.0 65.5 4.0 10.5 20.0
Indonesia 178 0.6 68.6 10.2 3.8 16.8
Japan 200 72.5 6.8 2.5 16.5 1.8
Korea 200 26.0 51.8 6.8 4.3 11.3
Malaysia 200 0.5 56.9 19.4 13.1 10.1
Philippines 120 1.7 42.1 3.6 16.8 35.9
Singapore 200 2.5 53.3 21.8 12.0 10.4
Taiwan 141 2.9 65.6 3.0 10.4 18.1
Thailand 167 2.2 56.5 7.5 12.8 21.1
East Asia nine 1,606 13.3 51.6 9.2 10.9 16.1
Hong Kong 158 6.3 60.6 28.0 3.5 0.9 0.6
Indonesia 132 3.8 57.3 14.1 3.6 13.4 7.8
Japan 136 57.4 9.6 6.3 6.6 19.1 1.1
Korea 159 28.9 54.5 6.9 2.7 6.0 0.9
Malaysia 154 2.6 51.5 39.7 1.4 2.2 2.6
Philippines 114 3.5 78.5 5.2 3.3 6.1 3.4
Singapore 131 8.4 60.2 20.5 3.8 1.7 5.3
Taiwan 163 57.1 13.8 9.2 2.5 17.5 0.0
Thailand 149 30.9 37.8 12.8 3.4 6.7 8.5
East Asia nine 1,296 22.9 46.1 16.2 3.4 8.2 3.3
Hong Kong 6.3 –4.9 24.0 –7.0 –19.1
Indonesia 3.2 –11.3 3.9 –0.2 –3.4
Japan –15.1 2.8 3.8 –9.9 17.3
Korea 2.9 2.8 0.2 –1.5 –5.3
Malaysia 2.1 –5.4 20.3 –11.7 –7.9
Philippines 1.8 36.4 1.6 –13.5 –29.8
Singapore 5.9 6.9 –1.3 –8.2 –8.7
Taiwan 54.2 –51.8 6.2 –7.9 –0.6
Thailand 28.7 –18.7 5.3 –9.4 –14.4
East Asia nine 9.6 –5.5 7.0 –7.6 –6.8

Meanwhile, state ownership has been on the rise. In 1996, only Singapore and Malaysia were characterized by high state ownership in publicly traded firms. Over the transition period to 2008, every country (except Singapore) experienced an increase in state involvement. Hong Kong, Malaysia, Taiwan, and Thailand had the most dramatic shifts, leading to a seven percent rise in the amount of East Asian firms controlled by the state. Foreign state ownership also emerged as important, especially in Thailand and Indonesia. In terms of outward foreign investment by the state in other countries' listed firms, Singapore and Malaysia were the biggest regional players.

We determine whether the patterns we observe are driven by changes within firms, or the set of a nation's largest publicly traded firms has itself changed. To answer this, wherever possible we trace the historical evolution of each firm in our dataset. Indeed we find that firms in the 1996 dataset underwent changes in ownership consistent with the patterns outlined above. In the wake of the Asian Financial Crisis, many family-owned firms went bankrupt, and the state gained majority control of others. At the same time we observe a change in the composition of newly listed firms, with a relatively large number of state-owned firms appearing on the scene.

While the East Asian economies have undergone considerable change in terms of corporate ownership, the manner in which stakeholders consolidate control over their firms has remained relatively static. The separation of ownership and control, as measured by the ratio of cash flow rights to voting rights, underwent little change. Family business groups still tend to leverage control more than the state and widely held institutions. The separation of ownership and control has increased the most in state-owned firms, however, especially when the firm is listed abroad.

Other means by which ultimate owners enhance control include: pyramidal ownership structures, where shares are held via another publicly traded firm; exclusive ownership arrangements in which a single entity controls over ten percent of company stock; and blood or employment relations with firm executives. With the notable exceptions of Thailand and South Korea, the use of pyramids has generally declined, amounting to a ten percent drop across the region. However, such pyramidal and cross-shareholding arrangements play an important role in accounting for widely held ownership in Japan, Korea, Taiwan, and Thailand. At the same time, exclusive ownership arrangements have risen 42% on average. As in 1996, around 70% of firms in 2008 employed executives with either a blood relation to the controlling family or previous employment history with a widely held owner.

The primacy of politics

Significant changes to the prevailing forms of corporate ownership have only emerged when dramatic changes to the political system have also occurred. As displayed in Table 2, important political changes occurred in several countries at the end of the 1990s, including Hong Kong, Indonesia, Taiwan, and Thailand. In each of these countries, ownership shifted in a new direction. In Hong Kong, the handover to China in 1997 corresponded to a major increase in the prevalence of state ownership. In Indonesia, the collapse of the Suharto regime in 1998 was followed by a decline in family ownership. In Taiwan, the Kuomintang's 55-year reign came to an end in 2000 and we observe a dramatic decline in family business group control. In Thailand, the 1997 Constitution (drafted by the first popularly elected Constitutional Drafting Assembly) created a directly elected bicameral legislature and was followed by a large fall in family ownership as well as a substantial increase in widely held ownership.

By contrast, the other countries that experienced little or no political change did not witness major shifts in the prevailing pattern of corporate ownership. Where change did occur, it tended to reinforce the pre-existing dominance of certain ownership types. In Japan, no political transformation occurred comparable to the above, and corporate ownership simply shifted between two forms of widely held ownership. Korea faced tremendous pressures to reform its corporate governance practices in the wake of the 1997 financial crisis, but the country did not experience major political change in terms of fundamentally new institutions or the decline of a regime; we observe the dominance of family and widely held ownership prevailing in 2008. Malaysia also suffered some of the worst effects of the financial crisis, yet the political regime remained intact; we witness a further consolidation of state control over publicly listed firms. The Philippines also faced substantial problems in the wake of the Asian Financial Crisis, but again there were no major political changes comparable to those countries discussed above. The corporate ownership arrangements simply reinforced prevailing patterns, corresponding to a substantial increase in family ownership. Singapore, by comparison, went relatively unscathed by the financial crisis, its political system went unchanged, and its ownership arrangements did not exhibit any major shifts between the two points in time, with family and state ownership predominating.

2: Political changes and ownership changes
Country Political Change Ownership Change
Hong Kong Handover to China in 1997 Significant increase in state ownership where there was previously almost none
Indonesia End of Suharto regime and democratization ensuing in 1998 with a new constitution Decline in family ownership
Japan No change Neutral change; a decline in widely held ownership matched by a rise in ownership by widely held corporations
Korea Little change Small changes to ownership arrangements
Malaysia No change Rise in state ownership reinforces pre-existing importance of the state
Philippines No change Rise in family ownership reinforces pre-existing importance of families
Singapore No change Little change
Taiwan End of the Kuomintang's 55-year rule in 2000 Significant decline in family ownership matched by significant rise in widely held ownership
Thailand Democratization ensues in 1997 with a new constitution Significant decline in family ownership matched by significant rise in widely held ownership

The findings suggest that implementing corporate governance reforms that lead to greater widely held ownership is often accompanied by political reform. A second important finding is that state ownership is on the rise across all types of political regimes. New forms of state capitalism are emerging across East Asia in which the merits of the state are blended with those of the market.

Marc Chagall (1887–1985): The Fiddler, Russia, 1912.. Chagall is often described as a “quintessential Jewish artist.” The motive of this painting is from the Sholem Aleichem's book “Tevye and his Daughters,” later popularized in the Fiddler on the Roof. It is the story of a poor religious Jewish family in Tsarist Russia. Chagall's paintings often reflected themes from his Hassidic Jewish childhood in Russia. Chagall and many other Jewish artists became so popular after World War I that it has been almost forgotten that visual art was not a traditional part of Jewish culture before the 18th century, unlike music and theater. The traditional rabbinical interpretation considered visual art to be “graven images.” This changed when the Jewish community assimilated into Eastern Europe and later into the Western modern art movement. Is this Eastern or Western Art? We couldn't decide, but when the referee (Swati Desai) asked us to include it, we had no choice.