Corporate governance in China: a review

Abstract

Purpose This study aims to provide a review of corporate governance in China because effective and strong corporate governance is necessary for the efficient functioning and long-term sustainability of financial markets and corporations. Design/methodology/approach The author provides a literature review of corporate governance in China through themes such as the concentration of state ownership, the degree of independence among board directors, insider trading, quality of financial disclosures and the maturity of capital markets. Findings The author reviews empirical work surrounding key corporate governance variables and identifies avenues for future research. The author finds that corporate governance mechanisms exhibit implications for firm performance, fraud, capital retention, financial constraints, institutional investors, auditing and the quality of financial disclosures. In addition, the author reviews evidence documenting the importance of independent board directors in regulation and ethical conduct. Originality/value The literature review contributes to the growing literature on responsible corporate governance and provides further understanding of the importance of business ethics for promoting the integrity and long-term sustainability of China’s capital markets and corporations and to ensure that company assets are used efficiently and productively in the best interests of investors and other stakeholders. This study offers insights to policy-makers interested in enhancing the quality of corporate governance within their nation. In addition, it provides a macro-level perspective for executives of multinational firms to consider if they are considering making a direct investment in China.