Chinese Corporate Governance Research Articles

How to Handle State-Owned Enterprises in EU-China Investment Talks

Chinese state-owned enterprises (SOEs) are one of the main obstacles preventing China and the European Union from agreeing on a bilateral investment agreement (BIT). Given the benefits that both China and EU could obtain from a BIT, the question of SOEs should be addressed in the most effective way.We examine the main differences between Chinese and European SOEs, in terms of their sectoral coverage and, most importantly, their corporate governance. We argue that preferential market access for Chinese SOEs in China is the key to their undue competitive advantage globally, and is also the reason why global consumers might not necessarily benefit from Chinese SOEs in terms of welfare gain.Preferential market access in China, rather than ownership of SOEs, should be the key factor when evaluating the undue advantage enjoyed by Chinese corporates because private companies with ties to the Chinese government might also benefit from preferential market access.We also offer a checklist of issues for EU-China investment talks in relation to Chinese SOEs. First, creating barriers to prevent Chinese companies acquiring European assets will not solve the problem. Instead, equal market access in China is a much better goal to pursue in order to reduce the seemingly unlimited resources that Chinese SOEs seem to have to compete overseas. Second, bringing Chinese corporate governance closer to global market principles is also essential to ensure European and Chinese corporates operate on an equal footing in their cross-border investment decisions.

Uwarunkowania rozwoju chińskiego systemu nadzoru korporacyjnego

W opracowaniu przedstawiono proces budowy chińskiego systemu nadzoru korporacyjnego na tle dokonujących się przemian chińskiej gospodarki. Zarówno rozwój gospodarczy, jak i będący jego częścią nadzór korporacyjny stanowią rezultat urynkowienia procesów gospodarczych. W rozwoju tym Chiny próbują wykorzystywać wzorce zachodnie, przynajmniej w zakresie rozwiązań instytucjonalnych. Istniejące w Chinach uwarunkowania, głównie o charakterze politycznym, sprawiają jednak, że możliwości wykorzystania doświadczeń zachodnich są nadal ograniczone. Sprawująca władzę partia komunistyczna skutecznie hamuje procesy demokratyzacji, które warunkują budowę wolnego rynku. Widać to wyraźnie na przykładzie systemu nadzoru korporacyjnego, którego rozwiązania nawiązują do wzorców zachodnich. Upolitycznienie chińskiej gospodarki sprawia, że instytucje tego nadzoru nie spełniają swojej roli, że mamy do czynienia z karykaturą nadzoru. W opracowaniu podjęto próbę wykazania, że bez wspomnianych procesów demokratyzacji narastać będzie nierównowaga instytucjonalna hamująca wzrost gospodarczy i powodująca narastanie napięć społecznych.

Institutional reforms and development of corporate governance and banking system in China

The objective of this paper is to review China’ instructional reforms and evaluate its effectiveness based on available empirical evidences with special reference to Chinese corporate governance system and financial system. As part of the wider economic reform initiated in the late 1970s, in the 1980s, the Chinese government adopted various measures aimed at reforming state owned enterprises (SOEs). These mainly include managerial autonomy, a management responsibility system, corporatization and partial privatization of former SOEs. In addition, the Chinese government took various steps to enhance the efficiency of the banking sector. The analysis shows that China’s efforts to improve the corporate sector through its own unique gradual and piecemeal approach has been successful in terms of introducing a formal governance structure for the corporate sector, liberalizing its financial sector, improving governance of state owned banks, and most importantly, developing the private sector as the back bone of the economy.

Mapping the Legal Landscape: Chinese State-Owned Companies in Australia

Australia has always relied heavily upon foreign sources of investment and financing and has in the past tended to draw mainly upon British, American and Japanese investment. In recent decades, Chinese state-owned enterprises (SOEs) have played an increasingly important role in the Australian economy with a rising level of investment taking place. Chinese SOEs have been more heavily involved in investments into larger Australian investment projects, such as in mining and infrastructure. Australia has seen an increase in the number of Chinese state-owned companies acquiring substantial domestic assets; this may continue following the ratification of the China-Australia Free Trade Agreement in 2015. Although Chinese SOEs operating in foreign countries such as Australia are required to comply with local corporate governance laws and principles, they also retain their unique Chinese corporate governance values and culture which they have inherited through their parent companies and from China itself. In Australia, there has been an ongoing debate over Chinese investment, with the business community being particularly supportive of such investment. Driven largely by the business community, this debate has been relatively narrow and has not explored the likely impact of Chinese SOEs and their subsidiaries upon the shape of corporate governance in countries in which they invest. This article seeks to examine the legal contours of Chinese-controlled investment in Australia with a view to acquiring a more informed understanding of the impact of Chinese SOEs upon the Australian legal landscape.

Empirical Study of Dynamic Chinese Corporate Governance Based on Chinese-listed Firms with A Panel VAR Approach

Purpose – In this article, a dynamic model like a VAR is an appropriate choice for estimating the possible interrelationship between ownership structure and firm performance as a dynamic process. Research design, data, and methodology – Data of this work are collected from Chinese stock exchange including 350 Chinese-listed firms during the period of 1999-2012. We hypothesize that this interrelationship dynamically exists between ownership structure and firm performance. To examine the correlation, a panel Vector Auto-regression (PVAR) approach generated by GMM method is utilized to test the possible dynamic relation embedded in corporate governance. Another two dynamic analysis solutions such as orthogonalized impulse-response function and variance decomposition are also used simultaneously. Results – Findings of this study indicate the evidence that dynamically endogenous relationship exists between ownership structure and firm performance. Further, there is a dynamical correlation between investment and performance. Impulse response and variance decomposition illustrate that impact of a shock to variables themselves is the main source for their variability. Conclusions – The conclusion in this study is that there is a bidirectional and inter-temporal effect between proportion of ownership and corporate performance for a long run in accordance with impulse response function. Overall, our results suggest that corporate governance in China is more market oriented.

Transparency and Opaqueness in the Chinese ICT Sector: A Critique of Chinese and International Corporate Governance Norms

AbstractThis article critiques the current Chinese corporate governance framework and the OECD Principles of Corporate Governance (OECD Principles) on which the Chinese framework is largely based through detailed analysis of public disclosures by four prominent Chinese internet and communications technology (ICT) firms. These include State-controlled firms (China Telecom & China Mobile), mixed ownership (ZTE), and privately-controlled firms (Huawei Technologies). The article argues that neither Chinese nor international corporate governance norms deal adequately with the complex group structures that are so common among large Chinese firms. It also reveals deficiencies in the rules on independent directors, supervisory committees, and Chinese Communist Party committees as they are applied by Chinese ICT firms. The article concludes with reform proposals that would provide more useful information and better protection to outside investors and public stakeholders in the unique Chinese corporate environment.

The Dilemmas of Independent Directors in China: An Empirical and Comparative Study

As independent directors have formed an integral part of the Chinese corporate governance model for more than a decade, it is now timely and important to examine their performance of their monitoring functions. As a result of studying the administrative sanctions imposed by the CSRC on independent directors, this article can offer several important empirical findings. Based on these discoveries, this article analyses the general fiduciary duties and specific monitoring functions of independent directors from comparative perspectives. It also explores the ‘independence’ of independent directors and examines their responsibilities in light of their reliance on professional third parties’ reports. This article argues that similar to their Western counterparts, independent directors in China are facing intrinsic dilemmas in the process of performing their monitoring functions.

Ascertaining the Notion of Board Accountability in Chinese Listed Companies

Accountability is a concept that has been frequently referred to in Anglo-American systems and in the OECD’s corporate governance documents, as well as in the English translations of corporate governance documents from non-English speaking jurisdictions. It is in the Anglo-American literature, in particular, where the word finds prominence. It has been suggested in China that accountability is one of the basic principles of corporate governance that needs to be consistently enforced. But does this mean that board accountability, as it has been provided for in the Anglo-American system, is actually an element of Chinese corporate governance? If not, should it be adopted? Or should China develop a concept that is more appropriately included as a critical part of its own particular corporate governance needs? The paper aims to address these matters in order to ascertain where Chinese corporate governance stands on accountability as far as the boards of large listed companies are concerned, and what it should do. We opine that while there are elements of accountability in Chinese corporate governance, it does not have the form of accountability embraced in Anglo-American systems. But, it is argued, as China moves from having a system totally based on administrative governance to one that is based more on economic governance the kind of approach that applies in Anglo-American jurisdictions is likely to become more relevant. Within a hybrid corporate governance system combining elements of both administrative and economic governance, we develop a unique “wenze system” with forms and characters of accountability that is likely to develop to address the needs of corporate governance in China and the fostering of its listed companies.

State Ownership and Corporate Governance in China: An Executive Career Approach

China’s state-owned enterprises (SOEs) now comprise over sixty percent of the largest 500 companies in China and more than ten percent of Fortune Global 500 companies in the world. Despite their importance to China’s domestic economy and foreign investment strategy, many governance characteristics of the SOEs remain a black box, including the SOEs’ executive composition and recruitment development. This Article shifts away from the typical focus on how corporations function (i.e., corporate structure) to an examination of the people in charge. Such an approach is important for understanding corporate governance and economic development in countries with weak legal institutions. Using this approach, this Article investigates the legal guidelines for SOE executive recruitment and the evolution of the educational, political, and career attributes of the CEOs of China’s large SOEs over the past decade. Furthermore, this Article utilizes legal, historical, sociological, and comparative methods to explain the change and stability of executive composition in China’s large SOEs. In sum, SOE executive recruitment shows an orientation toward politically-bounded and firm-specific professionalism, as well as some faint potential for bottom-up and competition-driven marketization. SOE recruitment guidelines and the empirical findings in this Article raise questions about the adequacy and capacity of existing international laws and enforcement mechanisms to cope with the rise of Chinese SOEs, the challenges to improving Chinese corporate governance, and the underlying forces that form apparent similarities in elite composition across countries.

Mapping the Legal Landscape: Chinese Government-Owned Companies in Australia

Australia has always relied heavily upon foreign sources of investment and financing and has in the past tended to draw mainly upon British, American and Japanese investment. In recent decades, Chinese state-owned enterprises (SOEs) have played an increasingly important role in the Australian economy with a rising level of investment taking place. Chinese SOEs have been more heavily involved in investments into larger Australian investment projects, such as in mining and infrastructure. Australia has seen an increase in the number Chinese state-controlled companies acquiring substantial domestic assets; this may continue following the ratification of the China-Australia Free Trade Agreement in 2015. Although Chinese SOEs operating in foreign countries such as Australia are required to comply with local corporate governance laws and principles, they also retain their unique Chinese corporate governance values and culture which they have inherited through their parent companies and from China itself. In Australia, there has been an ongoing debate over Chinese investment, with the business community being particularly supportive of such investment. Driven largely by the business community, this debate has been relatively narrow and has not explored the likely impact of Chinese SOEs and their subsidiaries upon the shape of corporate governance in countries in which they invest. This article seeks to examine the legal contours of Chinese-controlled investment in Australia with a view to acquiring a more informed understanding of the impact of Chinese SOEs upon the Australian legal landscape.

Does Corporate Governance Matter? Evidence from New Chinese Corporate Governance Disclosures

This paper examines the association between corporate governance, financial distress risk, and firm financial and market performance by using the Corporate Governance in Finance (CGF) Index developed for Chinese firms. We find that the CGF Index is significantly negatively associated with financial distress risk measured by the Zmijewski-score, O-score, and Z-score. We also find that accounting and market performance measures are significantly positively related to the CGF Index. Finally, for the short-window cumulative abnormal returns (CAR), we find that, around the release of CGF Index, the CAR of firms with lower scores are significantly negative, while that of firms with higher CGF Index scores are not significant. Our results provide further support for the important role of corporate governance effectiveness in the financial reporting process in the emerging markets.

Transparency and Opaqueness in the Chinese ICT Sector: A Critique of Chinese and International Corporate Governance Norms

This paper critiques the current Chinese corporate governance framework and the OECD Corporate Governance Principles on which the Chinese framework is largely based through detailed analysis of public disclosures by four prominent Chinese internet and communications technology (ICT) firms. These include State-controlled firms (China Telecom & China Mobile), mixed ownership (ZTE), and privately-controlled firms (Huawei Technologies). The paper argues that neither Chinese nor international corporate governance norms deal adequately with the complex group structures that are so common among large Chinese firms. It also reveals deficiencies in the rules on independent directors, supervisory committees, and Chinese Communist Party committees as they are applied by Chinese ICT firms. The paper concludes with reform proposals that would provide more useful information and better protection to outside investors and public stakeholders in the unique Chinese corporate environment.

Board Size and Corporate Risk: Evidence from China

ABSTRACTThe purpose of this study is to investigate the negative relationship between board size and corporate risk taking in a unique market and institutional environment of China. The authors used a comprehensive sample of 1,502 Chinese listed firms, over a sample period of 2008 to 2013. Empirical findings show that despite the uniqueness of Chinese corporate governance features, board size is negatively associated with corporate risk taking. However, the economic impact of change in board size is much smaller than other developed market context, highlighting the exclusive features of Chinese boards and market.

Religion and stock price crash risk: Evidence from China

This paper investigates whether religious traditions influence firm-specific crash risk in China. Using a sample of A-share listed firms from 2003 to 2013, we provide evidence that the more intense the religious environment, the lower the stock price crash risk, implying that religion plays an important role in Chinese corporate governance. Further, we find that (1) religion affects stock price crash risk by reducing earnings management and the management perk problem; (2) different religions have different effects, and Taoism, in particular, is unrelated to crash risk; and (3) the effects of religion are more pronounced with higher quality corporate governance and a stronger legal environment. Religion constrains the management agency problem, thus reducing stock price crash risk in China. Our paper enriches the literature on stock price crash risk and religion, and on new economic geography.

A Multilingual Analysis of Corporate Governance News

In this study, we conduct a textual analysis of media news for a sample of Chinese ADRs and compare the topics discussed by English- and Chinese-language media outlets. Our findings suggest that a large proportion of corporate governance news articles published by Chinese media outlets appear to be overlooked by the English media. Next we investigate investors’ attention to Chinese corporate governance news. Our findings are consistent with the notion that high costs associated with searching, translating and processing foreign language news creates informational frictions for foreign investors.

The issue of enforcement in Chinese corporate governance

Purpose – The purpose of this paper is to discuss two important aspects of enforcement of ethical standards: indirect enforcement, that is the Confucian approach, and common law enforcement. In the context of Confucianism, one must adopt the ethical teachings in a moderate or “middle” way. We should not be too attached to the liberal interpretation of the Confucian texts but must have the wisdom to apply the concepts case-by-case. The issue then is if there are no legal consequences or punishment, then how we can ensure that someone will continue to comply with the standards. Design/methodology/approach – The authors analyze the Confucian texts in relation to the enforcement of the ethical standards. The authors investigate the Entity Maximization and Sustainability Model by referring to the exit option, the voice option, the influence exerted on the board of directors, the sending of the Confucian representatives to sit on the board of directors, the oppression remedy and statutory derivative actions. The authors adopt a comparative study approach and argue that the Confucian enforcement of ethics can fill in the gap where common law rules of procedure cannot reach in the context of Chinese corporate governance system. Findings – By referring to the Confucian teaching, there are several ways to encourage the superior to follow the ethical standards, namely, education, fear of punishment by society, peer pressure, intrinsic value, continuing education and codification of Confucian value/moral standards. In addition, there are several enforcement options based on the Entity Maximization and Sustainability Model, which is highly relevant to the enforcement model of Confucianism. Originality/value – It is the first of its kind in strengthening the enforcement of Chinese business ethics by adopting the Confucian approach and common law approach. The two are not mutually exclusive but complementary with each other to bring the enforcement of Chinese business ethics to the next level.

University Governance for the Longer-Term

Corporate governance models are becoming more prevalent in many universities, despite concerns over the effects of corporate practices on the identity of universities as a unique institutional field. In Westminster university systems, governance practices have become highly professionalized along corporate lines, not least to ensure a good fit with the necessary regulatory regimes for a marketized university system. Examples of Australian practices are provided to illustrate the governance dynamics, as both Western and Chinese corporate governance practices will affect the culture of Chinese universities, despite the continuance of deeply-inscribed State influence. Professionalization of governance in Australia has brought benefits but also generated some ‘blind spots’ to sustaining the longer-term features of successful universities. Stronger academic governance could provide a counterweight, yet the relationship between corporate governance and academic governance is not yet as well-defined as it needs to become.

(A Study on State-Owned Enterprises Reform in China)

(A Study on State-Owned Enterprises Reform in China)

Does Public Enforcement Matter in Weak Investor Protection Countries? Evidence from a Natural Experiment

Exploiting two Chinese corporate governance law enforcement campaigns in 2002 and 2007, we provide insight into how to make public enforcement work in weak institutional environments. Both campaigns aim to enforce the same mandatory Corporate Governance Code but differ in three important aspects. First, the 2007 campaign was more transparent with regard to the disclosure and correction of identified corporate governance noncompliance problems. Second, the 2007 campaign required the CSRC regional offices to be more involved in monitoring the implementation of the public enforcement campaign. Third, the 2007 campaign imposed more binding penalties for firms that fail to timely correct the identified governance noncompliance problems. Our analyses suggest that the 2002 campaign was not successful but the 2007 campaign was in improving publicly listed firms’ corporate governance and shareholder value. Our results suggest that public enforcement, if properly implemented, still matters in increasing shareholder value even in weak investor protection countries.

The Importance of Social Relations in Chinese Corporate Governance

The main purpose of this paper is to highlight the different conception of social relations in Chinese Culture and its effect on law of Corporate Governance. In particular this paper first will examine the positive aspects given by the power of social relations to Chinese Corporations, i.e. improvement of performance. Second it will show the negative ones, such as corruption, that could decrease the development of Chinese Corporations. Finally, we will try to understand how to fix these problems using the rules of Corporate Governance.