Initial Public Offering and Corporate Governance in China's Transitional Economy

This paper empirically investigates the performance of Chinese initial public offerings (IPOs). The data used covers the period from mid-1995 to mid-1999 with the sample including 884 companies (both in the A- and B-share markets). In an examination of growth, profitability and stability of listed companies either individually or as a combination, it can be seen that the only industries in which listed companies in China display strong performance are public utilities, transportation and finance. If one examines the changes in listed companies' financial indicators following the IPO, it becomes apparent that with the exception of earnings related indicators (EPS and ROE) there are no significant changes. What's more, the financial indicators tend to fall rapidly year on year. This means that the IPO is of little obvious help to companies' operational performance, and may actually make things worse. One of the reasons for this is that in order to implement the IPO and secure stock market listing, companies tend to submit inflated figures in the financial statements that they are required to provide. Another possible factor is the poor corporate governance characteristics of Chinese enterprises.

An empirical investigation of agency costs and ownership structure in unlisted small businesses

The study uses panel data to investigate agency costs, both principal-agent (PA) and principal-principal (PP), in 240 small businesses not listed on the New Zealand Stock Exchange. Results show that both forms of agency cost vary according to industry, the life of the business and size. The results indicate that the degree of owner involvement in the business influences firm PA and PP agency costs. Moreover, this study finds non-linear relationship between agency costs and ownership structure align with convergence of interest hypothesis and managerial entrenchment hypothesis. It is noted that the distortion between equity returns and debt returns gives rise to a preference for quasi-equity and distorts the productive base and effective pricing of risk. The analysis indicates there is considerable variability in the burden of agency cost and that this raises the potential for regulatory and policy reforms that may enhance the productivity and growth in the sector

The determinants of board compensation in SOEs. An application to Italian local public utilities

This paper investigates the determinants of board compensation for a sample of Italian State Owned Enterprises (SOEs). To that purpose, we use a newly collected panel data of 106 local public utilities observed form 1994 through 2004, which includes detailed information on the boards of directors. During this period, the deregulation process inspired institutional interventions that forced utilities, traditionally owned by local municipalities, to change their juridical form and ownership structure, thereby facilitating the entrance of private investors. The corporate governance literature shows that such changes may exacerbate the agency conflicts between shareholders, top executives and the board. However, board compensation could reduce the agency costs by aligning the incentives of managers with the interests of shareholders. This paper addresses this issue by investigating the impact that board composition, firm characteristics and performance have on board compensation. We find that the average board pay is negatively related to board size and positively related to firm dimension. The public or private nature of the major shareholder does not influence board compensation but the juridical form does. Finally, while the proportion of politically connected directors is found to negatively influence the level of per capita compensation, the impact of firm performance is uncertain.board compensation, board composition, politicians, local public utilities

The determinants of board compensation in SOEs: An application to Italian public utilities

This paper investigates the determinants of board compensation for a sample of Italian State Owned Enterprises (SOEs). To that purpose, we use a newly collected panel data of 106 local public utilities observed for the years 1994-2004, which includes detailed information on the boards of directors. During this period, the deregulation process inspired institutional interventions that forced utilities, traditionally owned by local municipalities, to change their juridical form and ownership structure, thereby facilitating the entrance of private investors. The corporate governance literature shows that such changes may exacerbate the agency conflicts between shareholders, top executives and the board. However, board compensation could reduce the agency costs by aligning the incentives of managers with the interests of shareholders. This paper addresses this issue by investigating the impact that board composition, firm characteristics and performance have on board compensation. We find that the average board pay is negatively related to board size and positively related to firm dimension. The public or private nature of the major shareholder does not influence board compensation but the juridical form does. Finally, while the proportion of politically connected directors is found to negatively influence the level of per capita compensation, the impact of firm performance is uncertain.board compensation, board composition, politicians, local public utilities

Ownership structure, board characteristics, and tax aggressiveness

Tax aggressiveness, as commonly proxied by the effective tax rate (ETR), measures a firm’s effort spent on minimizing its tax payments. It is suggested that more tax aggressive firms have greater incentives to allocate resources to minimize taxes and thus have lower ETRs. Corporate governance has been continuously receiving attention in literature across different fields and can affect a firm’s tax strategy through its control mechanism. This thesis investigates how corporate governance influences a firm’s tax aggressiveness. The main hypothesis of this thesis is whether firms with good corporate governance will have less incentives and opportunities to manage tax aggressively. Specifically, I take advantages of the distinct institutional settings in China to study whether the Chinese firm’s tax aggressiveness is affected by ownership structure and the characteristics of board of directors. Using all non-financial listed companies in the Chinese A-share market during 2003 and 2009 period, I find that firms with state-controlled nature and lower proportion of controlling shares pursue less aggressive tax strategies and maintain higher ETRs. In addition, my finding is consistent with prior literature that a higher percentage of the boards’ shareholdings and dual service duties performed by the board chairman result in lower ETRs. However, I do not find a significant relationship between the percentage of independent directors and tax aggressiveness which may suggest the ineffective role of independent directors in China

“Family” ownership, tunneling and earnings management: A review of the literature

In this review article, we bring together a number of aspects of family firms that are ubiquitous in a number of institutional contexts, often as part of larger business groups. We pay particular attention to the mechanisms by which families retain control over firms, and the incentives of the families in control to expropriate other stakeholders by way of tunnelling. We examine the role of earnings management in facilitating tunnelling, and evidence about the incidence of earnings management in family firms. Our review suggests that while the literature on these aspects of family control is rich, the contexts in which the empirical exercises are undertaken are relatively few, and hence there is considerable opportunity to expand it to other contexts, in particular in the form of cross-country comparisons of the relative impact of agency conflicts and institutions on these issues.http://deepblue.lib.umich.edu/bitstream/2027.42/64422/1/wp954.pd

The class of shareholdings and its impacts on corporate performance: a case of state shareholding composition in Chinese publicly listed companies.

Does the class of shareholdings matter for corporate performance? To address the question, our paper starts by classifying shareholdings on the basis of the principle of ultimate ownership. At present, the shareholding structure of Chinese quoted companies is state-dominant in that 84% of public companies ultimately are found controlled by the state, compared with 16% of non-statecontrolled ones. In contrast to our identified shareholdings, the Chinese official shareholding record only reports the state and the legal person share classes that are inevitably ambiguous for the identification of ultimate owners of public corporations, which in turn has misled many previous studies in assessing the impact of shareholding classes on performance. Based on our newly established shareholding classes, we make a nested performance comparison between these different classes, such as the state direct control versus the state indirect control, and find significant evidence from the Chinese data that the class of shareholdings does matter for company performance. The least inefficient shareholding class is the holding companies that are wholly listed and have focused industrial business through the state indirect control of the downstream public corporations. This finding provides ground for us to think more about how the corporate control mechanism could be further improved in China’s current corporate governance reform

Corporate Governance and Market Valuation in China

This paper studies the relationship between the governance mechanisms and the market valuation of publicly listed firms in China empirically. We construct measures for corporate governance mechanisms and measures of market valuation for all publicly listed firms on the two stock markets in China by using data from the firm’s annual reports. We then investigate how the market-valuation variables are affected by the corporate governance variables while controlling for a number of factors commonly considered in market valuation analysis. A corporate governance index is also constructed to summarize the information contained in the corporate governance variables. The index is found to have statistically and economically significant effect on market valuation. The analysis indicates that investors pay a significant premium for well-governed firms in China, benefiting firms that improve their governance mechanisms.http://deepblue.lib.umich.edu/bitstream/2027.42/39949/3/wp564.pd

Multiple agency perspective, family control, and private information abuse in an emerging economy

Using a comprehensive sample of listed companies in Hong Kong this paper investigates how family control affects private information abuses and firm performance in emerging economies. We combine research on stock market microstructure with more recent studies of multiple agency perspectives and argue that family ownership and control over the board increases the risk of private information abuse. This, in turn, has a negative impact on stock market performance. Family control is associated with an incentive to distort information disclosure to minority shareholders and obtain private benefits of control. However, the multiple agency roles of controlling families may have different governance properties in terms of investors’ perceptions of private information abuse. These findings contribute to our understanding of the conflicting evidence on the governance role of family control within a multiple agency perspectiv

Influential Factors Of Executives Equity-Based Revenue In Chinese-Listed Companies

In the Chinese context of economic reform and restructuring to establish the modern corporate system, new models of executives equity-based revenue are tested. Stock option income is currently becoming a critical part in the whole package offering to the executives. In this research, we examine the influential factors of executives equity-based revenue in 127 Chinese-listed companies. It appears that business performance is positively related to executives equity-based compensation, that there is no significant correlation between executives equity-based compensation and corporate size, that industry is an influential factor of executives equity-based compensation, and that there is no significant correlation between executives equity-based compensation and tenure. Based on these findings, we suggest future improvements to establish a healthier equity incentive system in China