East meets west? Determinants of Chinese firms' response to pressures towards international corporate governance standards

Abstract

The diffusion of corporate governance standards globally has received special attention from researchers in an increasingly globalized economy. This topic is particularly significant in emerging economies as they encounter both economic pressures to adopt international governance standards and pressures to conform to local institutional resistance to change in governance. Drawing on multi-theoretical perspectives including agency theory, resource dependence theory and institutional theory, this study examines the role of CEO and board characteristics, ownership structure, prior firm performance, and firm’s selection of accounting standards and auditing firms in determining Chinese publicly listed firms’ responses to pressures to adopt international governance standards. This study finds that (1) Chinese publicly listed firms with better prior performance measured by ROA are more likely to be early adopters of international governance model; (2) in general, the antecedents of CEO and board characteristics are not significant predictors of firms’ adoption of international governance standards; (3) direct (ownership) and indirect links to Chinese government play significant roles in shaping firms’ governance standards and practice; and (4) firms’ ownership structure particularly proportion of tradable shares and presence of foreign ownership are significant predictors of firms’ corporate governance orientation, while ownership concentration is not. This research enriches the bodies of international corporate governance literature and contributes to institutional change literature by empirically testing how firms facing similar political pressure, functional pressure, and social pressure (Oliver, 1992) produce heterogeneous strategic responses in an emerging context. It also contributes practically to the development of government business policy and effective management of firm strategies in China.