Corporate governance of Chinese fund management companies

The growth of the fund management industry is an important part of China’s financial development. The contractual form of fund management companies (FMC) organisation in China presents a multiple governance issues in addition to the conventional agency problems associated with modern corporations. The lack of fund investor’s voice in the governance of FMC, coupled with a regulatory environment with weak enforcement of investor protection, heightens the need for effective FMC governance in protecting the interests of fund investors. Board effectiveness is usually considered in the literature as the central internal governance mechanisms to enhance investor protection. Financial performance is the key interest for fund investors. Using panel data of 288 firm-year observations covering more than 98% of FMC in China from 2006 to 2010, this study presents the first in-depth systematic investigation on how the quality of corporate governance may matter in determining board effectiveness and financial performance of the contractual form of FMC organizations by investigating evidence from China where institutional and regulatory environment is quite different from those of funds in the U.S. The results of empirical tests in this study suggest that corporate governance quality is important in determining FMC performance. In examining how key internal governance mechanisms affect FMC board effectiveness and financial performance, we find that FMC with a listed controlling shareholder significantly enhances board effectiveness and improve FMC performance while the presence of foreign ownership in FMC increases FMC fees, it substantially enhances FMC performance. Findings of this study also shows that the concentrated ownership in FMC has no impact on board effectiveness but harms FMC performance. This study shows that larger board has no effect on board effectiveness but harms FMC performance, affirming the ineffectiveness of board size in China and the higher coordination costs impacting negatively on FMC performance. The proportion of independent directors is found to have no impact on either board effectiveness or FMC performance. With its concentrated ownership among FMC and shortage of qualified independent directors in China, it is unlikely that independent directors plays an effective role in monitoring and control, thus resulting in ineffectual board independence in China’s current circumstance. While the presence of female senior executives is found to enhance FMC board effectiveness, the impact of female senior executives on FMC performance is not found. Increasing the number of females on board has no impact on board effectiveness but actually damages FMC performance. This study shows the presence of remuneration committee could enhance board effectiveness but has limited power to influence FMC performance. While the presence of remuneration committee can help better align of interests between senior officers in FMC and fund investors, it plays negligible role in retaining Chinese fund managers because of the high turnover rate in Chinese fund managers. Overall, the thesis provides strong evidence that the governance of FMC is important in enhancing the board effectiveness and the financial performance of funds

Venture Capital Institutions and Venture Capitalists’ Investment Activities: An Empirical Study on China

This thesis explores institutions under which venture capital investment operates in China and whether and how these institutions affect venture capitalists’ (VCs) investment preferences, ex-ante project screening strategies, and ex-post monitoring activities in China. Based on an analysis of about 50 unstructured and semi-structured interviews and an examination of more than 800 venture capital backed deals, this study finds that regulations on corporate governance impact VCs’ investment activities in China. Due to regulatory restrictions, most foreign venture capital firms are structured under limited partnerships, whereas all domestic venture capital firms (VCFs) are structured as limited companies in China. The difference in corporate governance of VCFs heavily affects VCs’ investment strategies in China. VCFs under limited partnerships show more risktaking capability than those structured as limited companies by investing more in younger projects with higher R&D intensity. Associated with the difference in investment preferences, VCFs under limited partnerships employ stage financing more frequently than those structured as limited companies do. At the same time, the stage financing strategies deployed by VCFs under limited partnerships are closely related to agency problems and transaction uncertainties. The more serious agency problems are the more intensive stage financing will be. However, VCFs structured as limited companies rarely employ stage financing and there is no visible pattern shown in their stage financing arrangements. Finally, similar to the practices in developed countries, VCs in China also take human capital factors as the utmost important criteria. However, they are more demanding in project screening by imposing additional criteria. Further, VCFs under limited partnerships are more demanding and more sensitive to market growth rate and financial returns, and more concerned about public policies. These results may be explained by the weak regulatory institutions in China and the incentives provided by different governance structures. VCFs structured as limited companies are organized hierarchically. Their incentive structure is designed to discourage risk taking and responsibilities. VCFs under limited partnership are more independent in governance that their incentive structures are designed to encourage risk taking and responsibilities