Dynamic study of corporate governance structure and firm performance in China

Abstract

PurposeThe paper aims to provide a comprehensive investigation of the relationship between corporate governance (CG) structure and firm performance in Chinese listed firms from 2001 to 2015. The authors’ motivation derives from the fact that the CG system in China is different from those in the US, the UK, Germany, Japan and other countries.Design/methodology/approachA large unbalanced sample, covering more than 22,700 observations in Chinese listed firms, was used to explore, by means of a system-generalized method-of-moments (GMM) estimator, the relationship between CG structure and firm performance to remove potential sources of endogeneity.FindingsResults show that Chinese CG structure is endogenously determined by the CG mechanisms investigated: there is no relationship between board size (including independent directors) and firm performance; CEO duality has a significantly negative effect on firm performance; concentration of ownership has a significantly positive influence on firm performance; managerial ownership is negatively correlated with firm performance; state ownership has a significantly positive effect on firm performance; and a supervisory board is positively correlated with firm performance.Practical implicationsThe findings provide policymakers and firm managers with useful empirical guidance concerning CG in China.Originality/valueFew integrative studies have examined the impact of CG structure on firm performance in China. This study adds new empirical evidence that the relation between CG structure and performance in China is endogenous and dynamic when controlling for unobserved heterogeneity, simultaneity, and dynamic endogeneity.