China participated in the World Trade Organization (WTO) in 2001 and after that there was rapid growth in the economy of the country and also in the economic restricting of the country. It has led to the improvement in the corporate governance and performance of the Chinese firms. Determinants of the managerial incentives in China were influenced by the economic growth and other economic factors which came into picture after 2001. We also dig more to find out the shareholders objectives and its relationship with the ownership structure in Chinese firms (Chen et al, 2008).
As we have already discussed that there are three types of shares issues in the Chinese stock market which are state shares, common tradable shares and legal entity shares. Central government which is a bureaucratic agency, such as national asset management department, controls and owns the state shares. There are two types of legal entity shares which are State owned legal entity shares owned by SOEs i.e. state owned legal entities and social legal entity shares which are acquired by some other legal entities. There is partial control of central and local government on state owned entities. Hence it is expected that both the state owned legal entity shareholders and state shareholders should share a common bond and they should work with the same motivation towards the better performance of the organization (Sun et al, 2002).