Corporate governance and firm efficiency: evidence from China's publicly listed firms

This paper applies a two‐stage, double bootstrapping data envelope analysis approach to investigate whether and to what extent various distinctive corporate governance practices affect productive efficiency in a sample of 461 publicly listed manufacturing firms in China between 1999 and 2002. We find that firm efficiency is negatively related to state ownership while positively related to public and employee share ownership. In addition, the relationship between ownership concentration and firm efficiency is U‐shaped, indicating the presence of tunneling activities by the largest shareholder. Among three types of controlling shareholder, state exerts the most negative impact on firm efficiency, followed by state‐owned legal entities. These results provide strong evidence that political interferences have reduced firm efficiency. It shows that the proportion of outside directors and the number of board meetings are positively associated with firm efficiency, suggesting that board of directors can be an effective internal governance mechanism. Furthermore, provincial market development, a proxy for the strength of external governance mechanism, is positively related to firm efficiency. Overall, our findings illustrate that restructuring state‐owned enterprises via improvements in corporate governance has enhanced firm efficiency, but partial privatization without transfer of ownership and control from the state to the public remains a major source of inefficiency in corporate China. Copyright © 2008 John Wiley & Sons, Ltd.     

Government Engagement,Environmental Policy,and Environmental Performance: Evidence from the Most Polluting Chinese Listed Firms

This study empirically examines the implementation of environmental policies and how government engagement impacts on a firm's environmental performance based on a sample of Chinese listed firms in the eight most polluting industries over a 10‐year period. The findings of the study demonstrate that government engagement, measured as ownership structure, is positively correlated with environmental performance, measured by environmental capital expenditure, for state‐owned firms, but no significant relation is found for non‐state‐owned firms. In addition, non‐state‐owned firms are more likely to perform better in terms of environmental investment after the 2006 enactment of a new policy explicitly linking environmental issues with political incentives to regional governments. This study also reports that corporate environmental performance impairs firm value for state‐owned firms but has no impact on firm value for non‐state‐owned firms, suggesting that investors negatively respond to environmental investments made by state‐owned firms as a result of government engagement/political pressure. Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment.     

Political Tie Heterogeneity and the Impact of Adverse Shocks on Firm Value

Past research has recognized the contingent value of corporate political ties but largely neglects their heterogeneity. Drawing on the political embeddedness perspective and literature on emerging economy political institutions, we develop hypotheses regarding how political networks comprising managerial and government ownership ties may have different valuation effects in the face of adverse political shocks. Examining stock market responses to an unanticipated, high‐profile political event in China, we find a negative valuation effect of managerial ties to municipal government, but an insignificant effect of government ownership ties. Further, companies combining managerial and ownership ties experienced less post‐shock reduction in market value than those holding only managerial political ties. These findings shed light on the values of different configurations of corporate political ties and inform firms of potential ways to manage ubiquitous political hazards in emerging economies.     

Ownership structure, corporate governance and productive efficiency in China

This paper investigates whether and to what extent ownership structure and corporate governance affect productive efficiency in a sample of 744 publicly listed manufacturing firms in China between 1999 and 2006. The paper finds that firm efficiency, as estimated using stochastic frontier analysis and data envelopment analysis, is negatively related to state ownership while positively related to public and employee share ownership. In addition, the relationship between ownership concentration and firm efficiency is U-shaped, indicating that the largest shareholder may engage in tunneling activities. As the identity of the largest shareholder changes from government, government-controlled legal entity to other types of legal entity, firm efficiency significantly improves. These results provide strong evidence that political interferences have reduced firm efficiency. Moreover, firms with more independent board are more efficient, supporting the argument that board of directors can be an effective internal governance mechanism. Furthermore, provincial market development, a proxy for the strength of external governance mechanism, is positively related to firm efficiency. Overall, the findings illustrate that restructuring state-owned enterprises via improvements in corporate governance has enhanced firm efficiency, but partial privatization without transfer of ownership and control from the state to the public remains a major source of inefficiency in corporate China.     

The effect of corporate governance on credit ratings: Evidence from China's bond market

This paper examines the association between firms’ corporate governance and credit ratings (both bond ratings and issuer ratings) in China. In addition to considering the financial attributes of bond issuers, we ask to what extent do credit rating agencies consider the corporate governance attributes of issuers? In concept, bondholders are concerned with the financial effects of how corporate governance resolves the agency conflicts between bondholders and managers, majority and minority shareholders, and shareholders and bondholders. We find that corporate governance affects bond issuer credit ratings in China. After controlling for firms’ financial attributes, we find that issuer ratings are positively related to dual‐listing, whether the firm is a state‐owned enterprise, the ownership of the second to the tenth largest shareholder; and negatively related to the relative scale of audit fees. We attribute the positive association between dual‐listing and credit rating to higher quality and transparency of information reported by the dual‐listed firm. The value to bondholders of the implicit government guarantee of debt payments more than offsets the negative association between firm value and being an SOE. Bond rating agencies expect that the change in agency costs with a reduction in the ownership of the largest shareholder benefits bondholders. To credit rating agencies, the scale of audit fees (relative to total assets of the accounting firm) signals interest binding between the client firm and the accounting firm that threatens the independence of auditing and the quality of financial reporting. We also find that bond‐specific attributes: collateral and issue size, are positively related to bond credit ratings.     

Influential ownership and capital structure

This paper explores the relation between ownership structures and capital structures in Russia—an economy with a state‐run banking sector, weak corporate governance, and highly concentrated ownership. We find that firms with the state as controlling shareholder have significantly higher leverage than firms controlled by domestic private controlling shareholders other than oligarchs. Both firms controlled by the state or oligarchs finance their growth with more debt than other firms. Profitability is negatively related to leverage across all types of controlling owners, indicating a preference for internal funding over debt. The results indicate that firms with owners that have political influence or ties to large financial groups enjoy better access to debt. Copyright © 2009 John Wiley & Sons, Ltd.     

Ownership Types and Strategic Groups in an Emerging Economy*

ABSTRACT Existing strategic group studies have rarely examined ownership type as a variable to classify firms in an industry. Using Chinese firms of different ownership types, we suggest that ownership type can be a parsimonious and important variable that managers use to cognitively classify firms into different strategic groups. While ownership itself is an objective variable, we contend that different ownership types lead to different managerial outlook and mentality due to a number of macro and micro foundations giving rise to various managerial cognitions. Employing the Miles and Snow typology, we find that state‐owned enterprises (SOEs) and privately‐owned enterprises (POEs) tend to adopt defender and prospector strategies, respectively, while collectively‐owned enterprises (COEs) and foreign‐invested enterprises (FIEs) exhibit an analyser orientation that falls between defenders and prospectors on the strategy continuum. Three statistical tests suggest that ownership types can be used to successfully predict strategic group memberships in China's emerging economy.     

Outside Directors on Korean Boards: Governance and Institutions

Drawing on institutional theory, this study examines the factors that pressured Korean firms to appoint outside directors to their boards. While this practice could be considered to be a management innovation in Korea, in the Anglo‐American corporate governance system it has long been used as one of several mechanisms to mitigate agency costs between management and shareholders. As such, this response by Korean firms, following the 1997–98 currency crisis in Asia, could be seen as an example of corporate governance convergence on the Anglo‐American model, where higher levels of outside director representation on the board are the norm. We examine the antecedents of having a higher proportion of outside directors on Korean boards. Our findings indicate that larger firms that are under stricter control by the government have higher representation of outside directors on the board. We also find a positive and significant relationship between the proportion of outside directors and business group affiliation, poor prior firm performance, higher levels of debt and foreign ownership.     

公司治理与代理成本——来自上市公司的经验证据

本文利用上市公司的数据,分析了公司治理与代理成本之间的关系。结果发现:股权集中度国家股比例、董事会规模、监事会规模、治理环境、公司透明度、企业规模与代理成本显著负相关;股权制衡度、领取报酬的董事比例、领取报酬的监事比例、董事会会议次数、股东大会会议次数与代理成本显著正相关;高管持股、独立董事比例、监事会会议次数、两职分离与代理成本无显著关系;财务杠杆率与代理成本的关系是混合的;国有上市公司和民营上市公司的公司治理与代理成本之间的关系与总样本基本一致。     

Ownership structure and board composition: A multi-country test of agency theory predictions

Patterns of corporate governance and control differ significantly across countries because of national differences in structures of ownership and composition of boards of directors. Based on agency theory, we examine the relationship between ownership structure and the composition of the board of directors of 390 large manufacturing firms based in Japan, Western Europe and the United States. In particular, we examine how ownership concentration, bank control and state ownership affect the percentage of outside directors on the corporate boards. The results show that, consistent with predictions of agency theory, ownership structure has significant effects on board composition.     

Director Ownership and Voluntary Segment Disclosure: Hong Kong Evidence

Weakness of corporate governance and lack of transparency are often considered causes of or contributors to the Asian Financial Crisis. Publicly listed companies in Hong Kong, like other Asian firms, have concentrated director ownership. The study uses voluntary segment disclosure above the benchmark minimum as a proxy for transparency and examines its relationship to the ownership structure and composition of corporate boards in Hong Kong. We find that: (1) high (concentrated) board ownership explains the extent of low voluntary segment disclosure and this negative relationship is stronger when firm performance is very poor; (2) the contribution of non‐executive directors to enhance voluntary segment disclosure is effective for firms with low director ownership but not for concentrated‐ownership firms. These results have implications for policy makers and regulators in the Asia‐Pacific region striving to improve governance and transparency.     

Government Regulation,Corporate Board,and Firm Value: Evidence from China

This paper investigates the determinants of board composition and its consequences on firm value in China by focusing on the impact of ultimate owner type and financial needs under the institution environment with government intervention and weak investor protection. We find that State‐Owned Enterprises (SOEs) are more likely to choose politically connected directors without professional backgrounds, but non‐SOEs are more likely to have independent directors, or politically connected directors with professional business backgrounds. Appointment of independent directors has no effect on firm value. Due to weak legal investor protection in China, a dominant shareholder can easily remove independent directors, as there is no mature market for directors. Politically connected directors without professional business backgrounds are negatively associated with a firm's value. Although such directors can help a company establish relationships with the government, their firms may suffer due to inferior professionalism.     

公司治理与现金股利分配倾向——来自中国上市公司的经验证据

本文以2002～2008年沪深A股765家上市公司为样本,实证检验公司治理结构对现金股利分配倾向的影响.结果发现:股权集中、国有控股、董事会规模大、高管薪酬高和选择四大会计师事务所的上市公司倾向分配现金股利,流通股比例高和独立董事规模大的公司不倾向分配现金股利,董事会领导权结构的影响不显著.同时,公司治理好的公司发放现金股利的倾向大,而公司治理差的公司的倾向小.进一步发现,中国上市公司具备发放现金股利的能力,却"不想"派现.     

A Comparison Between One‐Tier and Two‐Tier Board Structures in France

French companies operate in a unique environment characterized by the strong involvement of block shareholders such as families and banks. Furthermore, the French legal system allows firms to choose between a one‐tier or a two‐tier board structure. This study investigates whether this choice can affect the firm's operating and stock performance. Our regression results provide strong evidence that ownership and board structures are used together as corporate governance tools. In particular, the agency cost of debt is strongly affected by their interaction when institutional investors are also bank lenders. Our test results show that while family control has a negative impact on corporate governance, French institutional blockholders play a positive role as monitors of one‐tier structures. In contrast, they are more likely to misuse the two‐tier board system by promoting interlocked directorship, board opacity and their own interests as creditors. Our regression analysis reveals that foreign institutional investors do not have any impact on firm performance, regardless of board structure. Finally, we do not find any inverse relationship between board size and efficiency in France.     

Strategic human resource management,firm performance,and employee relations climate in China

We examined strategic human resource management (SHRM) and human resource practices in the People's Republic of China to assess the impact of these practices on firm performance and the employee relations climate. We also tested whether firm ownership moderates the above relationships. Empirical results from a sample of Chinese firms from various industries and regions showed that the levels of adoption of SHRM and HR practices were lower in state‐owned enterprises (SOEs) than in foreign‐invested enterprises (FIEs) and privately owned enterprises (POEs). Both SHRM and HR practices were found to have direct and positive effects on financial performance, operational performance, and the employee relations climate. However, the moderating effect of ownership type was significant for financial performance only. © 2008 Wiley Periodicals, Inc.     

Institutional antecedents and performance consequences of employment security and career advancement practices: Evidence from the people's republic of China

In this study, we examine the provision of employment security and career advancement opportunities in firms of diverse institutional ownership and the impact of such practices on employee and firm outcomes. The sample included 478 state‐owned and non‐state‐owned firms (i.e., domestic private firms, Sino‐foreign joint ventures, and wholly‐foreign‐owned firms) in the People's Republic of China. We found that the provision of employment security was greater in state‐owned than in non‐state‐owned firms. The provision of career advancement opportunities in domestic private firms and Sino‐foreign joint ventures was similar to that in wholly foreign‐owned firms, but greater than that in state‐owned firms. The provision of career advancement opportunities was positively related to employee organizational commitment, citizenship behaviors, and firm performance. The provision of employment security was positively related to employee organizational commitment, but not to citizenship behaviors or firm performance. © 2008 Wiley Periodicals, Inc.     

Board gender diversity and corporate environmental performance: The moderating role of family and dual‐class majority ownership structures

While prior work has investigated the impact of (a) ownership structure and (b) board gender diversity separately on corporate environmental performance, researchers have not studied the potentially important relationship between ownership control and female board diversity in influencing corporate environmental performance jointly. We do so in the context of majority ownership in family‐controlled and dual‐class firms whose motives and influence are theoretically different from that of the firm's minority shareholders. Drawing on resource dependency, socioemotional wealth theory, and secondary agency theory, we hypothesize that majority family owners and dual‐class owners likely choose women directors to help advance their personal preferences for environmental corporate social responsibility. Our empirical tests utilizing 2,755 U.S. firm years over the 2010–2015 show that, as hypothesized, these two majority ownership types interact with board gender diversity to positively influence corporate environmental performance.     

Are Related‐Party Sales Value‐Adding or Value‐Destroying? Evidence from China

Prior literature provides mixed and relatively little evidence on the economic consequences of related‐party transactions. We examine a hitherto underexplored issue of whether transactions among firms within the same business group increase or reduce firm value. Using a large sample of Chinese listed firms, we find that related‐party sales increase firm value. However, this value enhancement disappears for firms with (i) large percentage of parent directors, (ii) high government ownership, or (iii) tax avoidance incentives that often couple with management's rent extraction activities. Although we find that intragroup sales improve firm value in general, we also find that corporate insiders use intragroup sales to deprive value from minority shareholders. Overall, our findings highlight the interplay between ownership structure and tax avoidance incentives in determining the economic consequences of related‐party transactions.     

Determinants of board size in an emerging market

Drawing largely upon the selective adaptation paradigm, the resource dependence literature, and the capture argument, we examine determinants of board size using panel data set of Korean‐listed companies that have experienced dramatic changes in their governance system following the 1997 Asian crisis and regulatory reforms. Observing that the firm's compliance with statutory requirements reflects a strategic choice, our results also investigate the idea that the determinants of board size differ between firms actively and passively adapting to regulatory reforms. For actively adaptive firms, board size increases along with firm complexity but it varies inversely with the power of controlling shareholders (CSHs). In contrast, the roles of complexity and CSHs are not significant but seniority‐based promotion is an important factor to increase the size for the passive firms. Our results suggest that determinants of board size differ depending on corporate strategies to comply with statutory requirements in an emerging market where family business is dominant and corporate governance system has substantially changed.     

Corporate governance and lesbian,gay, bisexual,and transgender‐supportive human resource policies from corporate social responsibility,resource‐based,and agency perspectives

Corporate boards are responsible for ensuring that managers enact policies that are in shareholders' best interests, and managers are responsible for implementing strategies that are not only profitable but also responsive to changing legal and societal demands and the resource needs of the firm. In this paper, we use the theoretical lenses of corporate social responsibility (CSR), the resource‐based view, and agency theory to investigate the relationship between corporate governance structure and the implementation of supportive lesbian, gay, bisexual, and transgender (LGBT) policies. We analyze 10,233 firm‐year observations and 1,594 unique firms, and our results demonstrate that LGBT‐supportive policies are positively associated with firm performance. We also offer new insight into why not all firms adopt such policies. We exploit the passage of the Sarbanes‐Oxley Act as an exogenous shock that increased board independence, and our difference‐in‐difference estimation shows that firms forced to raise board independence in 2002 were less likely to invest in LGBT‐supportive policies. Results suggest that human resource management (HRM) policies can be guided by CSR and resource‐based views in the pursuit of wealth maximization, but agency conflict may also be a concern for external majority boards. We discuss implications for HRM research practice and corporate governance regarding LGBT policies in organizations.