This study examines the role of ownership concentration, measured by the top-five shareholders’ equity ownership, in shaping corporate finance policies in China. Among privately-owned enterprises (POEs), ownership concentration has negative and positive effects on their debt and cash reserves, respectively. These effects are more pronounced if POEs have high market-to-book, suggesting that growth opportunities heighten their controlling shareholders’ desire to avoid debt and hoard cash. Although ownership concentration has similar effects on debt and cash in state-owned enterprises (SOEs), these effects in SOEs appear to arise from management entrenchment. Our evidence suggests that ownership concentration is a key driver of corporate finance in an emerging market, but private and state ownership concentrations have seemingly similar but qualitatively different consequences.

JEL classification: D22, G32, G34

Keywords: Ownership concentration, capital structure, cash reserves, POE, SOE, China​​