Chinese Corporate Governance Research Articles

(State Shareholding and Corporate Governance in China)

Chinese Abstract: 公司治理这一概念引入中国的时机似乎业已成熟。中国分析家对公司治理的抽象定义一般是指在商业组织中，调整所有具有利益关系的当事人相互之间关系的整个体系，而且通常认为股东是其中具有特殊重要性的群体。但是实际上，中国对公司治理的论述几乎仅局限于代理问题，而且范围限定在两种公司内：国有企业（SOE），特别是改制成为符合公司法要求的法人形式后的国有企业，以及上市公司，上市公司必须是符合公司法规定的股份有限公司（CLS）。本文将探讨上述狭窄范围内的中国公司治理，并且试图就关于公司治理的论述、法律、机构和制度（此后略称“公司治理法律及制度”或CGLI）中存在的令人困惑的一些特性作出解释。 中国 CGLI 的一个基本困境，根源于在一些经济领域，国家要对企业保有完全或控制性所有权的政策。国家希望其所有的企业能够有效运行，但是企业的有效运行并不是仅为财富的最大化服务的。国家对企业的控制，还基于对其他因素的考虑，如要服务于维持城市就业水平、保证对敏感行业的控制及实现政治性就业安排等目的。 由此产生了若干问题。首先，这些目标当中的许多很难对其进行衡量，即使能够衡 量，也很难决定各目标之间的最佳平衡。这为监督带来了困难。其次，国家继续对企业发挥影响的政策，导致国家作为控股股东，与其他股东之间产生了利益冲突。国家通过对企业的控制，实现价值最大化之外的目的，会造成国家剥削小股东的现象，因为小股东与国家股东不同，只有通过价值最大化才能从其投资中受益。 本文的主题是，国家通过实施不同的新规则——“现代企业制度”下的组织制度，希 望推动SOE 更有效地运行。但是决策者们很快发现，对国家所有权的需要的考虑迫使他们必须对这些规则作出修改、调整。而且，对国有企业特殊情况的考虑的结果使整个《公司法》受影响，导致了不是国有企业需要遵守为私营企业设置的规则（这是初衷所在），而是潜在的私营企业被迫要遵守仅适用于由国家大量投资的经济的规则，它们因而遭受挫折。 English Abstract: Corporate governance (gongsi zhili) is a concept whose time seems definitely to have come in China. Chinese definitions of corporate governance in the abstract tend to cover the system regulating relationships among all parties with interests in a business organization, usually spelling out shareholders as a particularly important group. But Chinese corporate governance discourse in practice focuses almost exclusively on agency problems, and within only two types of firms: state-owned enterprises (SOEs), particularly after their transformation into one of the corporate forms provided for under the Company Law, and listed companies, which must be companies limited by shares (CLS) under the Company Law. This article discusses Chinese corporate governance in this narrow sense, and attempts to explain some perplexing features of its discourse, laws, and institutions (abbreviated hereinafter as "corporate governance laws and institutions" or CGLI). A fundamental dilemma of Chinese CGLI stems from the state policy of maintaining a full or controlling ownership interest in enterprises in several sectors. The state wants the enterprises it owns to be run efficiently, but not solely for the purpose of wealth maximization. A necessary element of state control of an enterprise is the use of that control for purposes such as the maintenance of urban employment levels, direct control over sensitive industries, or politically-motivated job placement. This in turn creates several problems. First, many of these goals are not easily measured and there is no obvious way of balancing them one against the other. This creates monitoring difficulties. Second, the policy of continued state involvement sets up a conflict of interest between the state as controlling shareholder and other shareholders. In using its control for purposes other than value maximization, the state exploits minority shareholders who have no other way to benefit from their investment. The major theme of this article is that the state wants to make SOEs operate more efficiently by subjecting them to a new and different set of rules - the rules of organization under the "modern enterprise system". Policymakers then find, however, that they must change and adjust the rules to take account of continuing state ownership. Moreover, the need to provide for the special circumstances of state-sector enterprises ends up hijacking the entire Company Law, so that instead of state-sector enterprises being made more efficient by being forced to follow the rules for private-sector enterprises (the original ambition), potential private-sector enterprises are hamstrung by having to follow rules that make sense only in a heavily state-invested economy.

Challenges for China—Beyond Minority Listing of SOEs: CARE Conference | Hong Kong Polytechnic University | June 9, 2014

Transitioning from outright communism and central planning, China has already plucked the low‐hanging fruits of marketization. Reforms have stalled well short of a free economy. In this transcript of a recent presentation, a widely recognized authority on Chinese corporate governance recommends necessary steps for an enlightened Chinese leadership if they are to avoid economic stagnation or a crisis that could undermine social stability. Even in a one‐party state without an electoral mandate, you can govern only with the consent of the people.

The Effects of Ownership Structure and Board Characteristics: Evidence From Chinese SOEs

Abstract Existing studies have failed to reach the consistent conclusion about the differences in performance between state-owned enterprises (SOEs) and non-SOEs. A sample of Chinese-listed firms from the period 2003–2011 is used in this study for fixed-effects panel data regression, providing up-to-date evidence related to the accounting and market performance of Chinese SOEs. The results enhance our understanding of the Chinese corporate governance mechanism, and offer cross-sectional implications for other emerging countries. We find that, in China, non-SOEs perform significantly better than SOEs. In addition, the Chinese SOEs have more complex agency problems, and the entrenchment effect seems to dominate the alignment effect for these firms. The findings also suggest that board characteristics including independent directors and CEO duality, are detrimental to the performance of the Chinese SOEs.

Ownership structure, ongoing related party transactions and corporate performance: evidence from Chinese listed firms

This paper is to review the association of the magnitudes of ongoing related party transactions with the largest shareholders (ORPTs) on the ownership structure and their impact on corporate performance of Chinese listed firms after substantial reform of Chinese corporate governance framework in 2005. Previous literature found that the largest shareholders used related party transactions to tunnel or prop up their controlled firms for their own benefits. Based on a sample of 6657 firm-year observations from 2007 to 2011, the authors find that there is still a positive association between ownership of the largest shareholders and ORPTs, but no significant association between ORPTs and corporate performance, and therefore, there is no evidence that the largest shareholders use ORPTs to tunnel or prop-up their listed firms. This study also finds that there is an endogenous effect of ownership of the largest shareholders on ORPTs, and the authors suggest that the largest shareholders still have to retain the control of Chinese listed firms because in economic reality, those listed firms are still an integral part of business operations of the largest shareholders (business groups), i.e. alignment effect.

Chinese Corporate Governance Regime from a Historical-Cultural Perspective: Rethinking Confucian System of Governance

Research Issue: Transplanted modern laws from the Western might be ill suited for China, because they are alien and reflects Western ideals and values. Looking back into China’s own rich history, there appeared to be an effective indigenous system regulating governance, one that was non-legal and based on Confucian doctrines governing Chinese merchants for centuries. Therefore, it might be prudent to revisit and revive such value based, norm driven self-regulated system to regulate corporate governance in China. Research Findings/Insights: At the heart of this Confucian centered benchmark, is the notion of san gang wu chang. This system of governance is not state or rule centered, rather this is a value based, norm driven, and community enforced framework, aimed at creating social harmony. These Confucian moral values aspire to higher standards of behaviour, much greater than what laws could because it is archetype standards of a righteous person. History has shown that in China’s regions like An Hui and Shan Xi merchants had voluntary observed these Confucian traditions. There was even a Chinese terminology to describe merchants that adhere to such self-regulatory standards, known as ru shang. More importantly, such self-regulatory governance measure had worked in China for centuries. Theoretical/Academic Implications: First, this study contradicts myths and misleading claims by observers like Max Weber who claimed that Confucianism had prevented China from developing capitalistic economy. Second, the analysis of san gang wu chang, as a governance and regulatory mechanism, it appears to work as a community of practice at the macro level, and on a micro level compliance is motivated by an individual’s beliefs and compulsion to do so. This was more than an ideal for the reason that moral benchmarks combined with hierarchical order creates a socially binding set of obligations. Examples from An Hui and Shan Xi had offered antidotal evidence of how this Confucian centered system was reaised. Furthermore, this regime was far more complex and sophisticated than a set of moral principles. Unlike rules, it was flexible with harmony, instead of set of laws as its an end goal. Practitioner/Policy Implications: China had an indigenous set of governance code that was no less effective than contemporary Western laws and thus should look at its own rich history and culture to provide an alternative set of company laws, one that is based on Confucianism. This is not to say that Chinese or Confucian centred regulatory order is necessarily superior to Western models, rather this is intended to offer greater variety to suit different types of investors and incorporators in China. This alternative is expected to be more culturally receptive from a Chinese perspective. Critics might argue that this is unnecessary. This paper argues that the present choice of different Western models of governance are based on Judo-Christian heritage and elements of Roman civil law dating back to the Roman Empire, all of which might be culturally estranged and meaningless beyond superficial compliance for the Chinese. Yet this paper does not advocate the removal of existing Western modeled corporate laws in China, the regulation solution would most likely be the establishment of a pluralistic governance regime, one the international markets are familiar with and the other, a Confucian based Chinese framework for those who subscribe to Confucian values.

Enterprise ownership and control in China: Governance with a Chinese twist

Inefficient state-owned enterprises in China were compelled to restructure to remain competitive, which resulted in phenomenal economic growth. While economically successful, China did not initially have any indigenous laws to regulate companies or control this growth, so Chinese lawmakers had to transplant corporate laws from developed Western countries. However, this transplantation process did not occur without problems, and certain domestic attributes had to be supplemented in corporate legislation to correspond with Chinese socialistic objectives and cultural values. This article analyzes the key attributes of Chinese corporate governance and regulations concerning shareholders’ rights and, in the process, highlights provisions that are peculiar and characterized as uniquely Chinese, ultimately raising more questions than answers for shareholders.

CEO Compensation and Corporate Governance in China

We analyze CEO pay in China’s public traded firms from 2000 to 2010. We find that Chinese CEO pay is made up mainly of salaries and bonuses. Firms can legally grant stock options since 2005, but the take up of these has been slow. We find that CEO equity ownership is higher in firms with higher CEO pay, more outside directors, combined CEO and chair, compensation committees, and better stock returns. We document that CEO pay is positively correlated to both accounting and stock market performance, although the link to accounting performance is more robust. CEO pay is higher in firms with more growth opportunities, compensation committees, and combined CEO and Chair. We find that CEO pay dynamics are important as pay this year is significantly positively correlated to CEO pay last year. Boards and compensation committees adjust CEO to target levels over a number of years. In addition, our study documents substantial changes in Chinese corporate governance over time. The Chinese State is less likely to be the ultimate owner of public firms, ownership concentration has declined, and internal firm governance has improved significantly as evidenced by a greater fraction of outsiders on the board and the adoption of compensation committees.

A survey of corporate governance: international trends and China's mode

PurposeThe literature on corporate governance has experienced an explosive growth in the past decade and presented some new trends. One purpose of this paper is to make an exploratory survey of this. Since China is a typically emerging and transition economy, another purpose of this paper is to review some domestic studies with an intention to discover the evolution logic of corporate governance practices in China under a complicated and exclusive context, the third purpose is to provide future research directions.Design/methodology/approachThis paper surveys recent literature in the field of corporate governance, intending to find out the development trends and extract the main line of literature on and practices of Chinese corporate governance.FindingsIn this paper, we find that recent literature on corporate governance provides some new insights into subtle characteristics of governance, governance effects of relational network, political connections, corporate governance evaluation and financial institutions governance. During the past decade, the literature on Chinese corporate governance has referred to some new areas during the transition process from administrative governance to economic governance. In addition to the above, we attempt to put forward an analytical framework and the proposition that Chinese corporate governance is in the transition process from administrative governance to economic governance.Research limitations/implicationsThe authors propose some research topics where future studies on corporate governance may prove valuable, especially putting forward an analytical framework which can be used for discussing and analyzing corporate governance in China.Originality/valueThis paper reviews some new trends of literature on corporate governance and makes a contribution to corporate governance studies by providing fruitful directions, extracting the main line and analytical framework for China's mode during the transition process from administrative governance to economic governance.

Local versus global: Corporate governance practices in Chinese domestic and overseas companies

Globalization has provided Chinese companies with a great opportunity to access international capital markets through various channels such as overseas listing and overseas incorporation. This movement has led to three main sets of corporate governance regimes that are applicable, respectively, to overseas issuers including H shares (listed in Hong Kong), red chips (incorporated out of Mainland China and listed in Hong Kong) and N shares (listed on the New York Stock Exchange). In various governance dimensions, these regimes differ from those subject to Chinese domestic issuers of A/B shares. Although the trend of implementing more internationalized corporate governance in China is clearly defined by Chinese authorities, the domestic issuers are obliged to comply with several governance regulations designed specifically to account for the current transitional Chinese economy. For investors, it is then interesting to reveal, to which extent, in which aspects, Chinese corporate governance has been or will be internationalized, in order to better understand the uniqueness of Chinese business and governance environments. Our study contributes to such questions.

The Ecology of Corporate Governance in China

The substantive norms of Chinese corporate governance have been studied extensively inside and outside China. Yet much less attention has been paid to the Chinese institutional environment that determines whether and how far those norms will be made meaningful. While complaints about general lack of enforcement are common, less common are analyzes that concretely tie institutional capacity to specific enforcement problems. This article aims to fill that gap. It surveys a number of state and non-state channels for the enforcement of corporate governance rules and standards in China, from markets to regulatory bodies, looking at the specific capacities of each. It concludes by finding that while the state for political reasons prefers to leave enforcement to state regulatory bodies, its repression of civil society institutions is so severe that even a modest relaxation could have substantial benefits.

The Role of Institutional Investors in Chinese Corporate Governance

The Role of Institutional Investors in Chinese Corporate Governance

The Role of Institutional Investors in Chinese Corporate Governance

China: An International JournalVol. 06, No. 01, pp. 151-168 (2008) a research noteNo AccessThe Role of Institutional Investors in Chinese Corporate GovernanceZhong-cheng YANG and Zong-jun WANGZhong-cheng YANGThe author is a PhD student in the School of Management, Huazhong University of Science and Technology, Wuhan. He is interested in corporate governance and firm evaluation. and Zong-jun WANGThe author is a Professor in the School of Management, Huazhong University of Science and Technology, Wuhan. He is interested in financial risk and performance evaluation.https://doi.org/10.1142/S0219747208000095Cited by:2 PreviousNext AboutSectionsPDF/EPUB ToolsAdd to favoritesDownload CitationsTrack CitationsRecommend to Library ShareShare onFacebookTwitterLinked InRedditEmail FiguresReferencesRelatedDetailsCited By 2Does the research done by the institutional investors affect the cost of equity capital?Fateh Saci and Sajjad M. Jasimuddin1 Jul 2021 | Finance Research Letters, Vol. 41Corporate Governance of Chinese Fund Management CompaniesPing Yu1 Jan 2011 | SSRN Electronic Journal Recommended Vol. 06, No. 01 Metrics History PDF download

Ownership Forms and Firm Value in Chinese Corporate Governance

Ownership Forms and Firm Value in Chinese Corporate Governance

Corporate Risk-Taking in Chinese Dual-Board Corporate Governance System

Corporate Risk-Taking in Chinese Dual-Board Corporate Governance System

Firm Performance and CEO Turnover in China: Implications for Chinese Equity Markets and Corporate Governance

The article discusses firm performance and CEO turnover in China. Particular attention is given to the implications of these issues on Chinese equity markets and corporate governance. The author offers information on a study conducted by researchers at Colgate University that examine the connection between CEO turnover and market performance of firms. The results of the study are analyzed by the author. Additional article topics include transition economies, how to maximize business profits while minimizing costs, as well as incentives to attract investors.

What Drives Compensation for China's CEOs?

The article considers the role of corporate vitality in shaping China's growth, focusing on the link between corporate financial performance and executive compensation. The author cites research by Michael Firth of The Hong Kong Polytechnic University, Peter Fung of Hong Kong Community College, and Oliver Rui of the Chinese University of Hong Kong. The researchers looked at Chinese corporate governance, including the role of the state in naming the dominant shareholder, which can be the state itself, state-owned entreprises that report to either the central government or to a local government, private Chinese shareholders, or foreign investors. The researchers found a range of correlations between dominant-shareholder type and executive pay, incentives, and corporate financial performance.

Cultural impact on Chinese corporate disclosure – a corporate governance perspective

PurposeThe purpose of this preliminary study is to explore the impact of changed cultural environment on the voluntary disclosure behaviour of Chinese listed companies.Design/methodology/approachA theoretical framework of the relationship between corporate disclosure and governance forms the basis of the research. A composite checklist of corporate disclosure was developed using relevant corporate governance indices and analyses were carried out on the 2003 financial reports of 120 Chinese listed companies. Six areas of voluntary disclosure of the sample companies were analysed and reported. These areas are: board structure and functioning, employees related issues, director remuneration, audit committee, related party transactions and stakeholder interest.FindingsThe results suggest that as China's cultural and social norms change, there was willingness of Chinese listed companies to provide voluntary information in addition to the disclosure requirements. Information relating to stakeholder interest and employees issues are found more frequently disclosed by listed companies than those which were regarded as sensitive. This is an exploratory study which shows that further research may provide more concrete evidence of the changing corporate disclosure environment in China.Research limitations/implicationsThis study based on one year's results and as such has limitation in the interpretation of the results. Further research is necessary to demonstrate the impact of culture in corporate disclosure.Practical implicationsThe results have practical implications for professional accountants and auditors to understand further the trend of voluntary disclosure in China. The paper provides some evidence of the changing scene of Chinese corporate governance practice.Originality/valueThis study fulfils a gap in prior research by examining the effect of cultural implications in corporate governance, in an emerging economy. The composite voluntary disclosure checklist will serve a good basis of measurement in corporate disclosure.

Corporate Governance in China—Is Economic Growth Potential Hindered by Guanxi?

Despite the opening of the market and partial privatization of state‐owned companies in China, the state still represents the controlling shareholder in larger companies. By analyzing the weaknesses of Chinese corporate governance we illustrate the framework for harmful corruption. China is characterized by a weak legal system and strong influences of traditions such as guanxi. In this article we analyze the influence of guanxi on the Chinese corporate governance system. We find that guanxi is in general a double‐edged sword, but business‐to‐government guanxi in particular can harm the weak Chinese corporate governance system and hamper its further economic development and growth.

Chinese Corporate Governance and Prospects for Reform

A critical element in China's current economic reform program is the creation of modern corporate governance structures in its corporations. Many of China's largest firms are caught between market incentives and political pressures, creating a situation ripe for managerial inefficiency. This article examines the financial and regulatory structures necessary for an efficient corporate governance system to function in China, and it assesses how these structures currently operate in the economy. The article identifies key failures in fostering modern corporate governance practices, which in turn jeopardize central elements of the government's reform program. The article includes a case study of the governance practices of PetroChina Company Ltd, the internationally listed subsidiary of China National Petroleum Corporation. The success or failure of the government's efforts to create proper governance mechanisms will carry important economic and political ramifications for China. Indeed, the successful implementation of corporate governance reforms may mark the final stages of China's evolution into a market economy.

Corporate Governance in China - Is Economic Growth Potential Hindered by Guanxi?

Despite the opening of the market and partly privatisation of state-owned companies in China, the state still represents the controlling shareholder in larger companies. By analysing the weaknesses of Chinese corporate governance we illustrate the framework for harmful corruption. China is characterised by a weak legal system and strong influences of traditions such as guanxi. In this article we analyse the influence of guanxi on the Chinese corporate governance system. We find that guanxi is in general a double-edged sword but especially business-to-government guanxi can harm the weak Chinese corporate governance system and hamper its further economic development and growth.