ABSTRACT

There has been extensive interest in the relationship between corporate governance and sustainable economic development among scholars, business executives and government regulators, especially after the 1997 Asian financial crisis, 2001 corporate scandals in the United States, and most recently the 2008 worldwide financial meltdown. Since the early 1990s, the Chinese government has been making intensive shareholder-oriented corporate governance reforms,1 such as reducing state ownership, increasing institutional shareholding, appointing more outside directors on the board, and separating board chair and chief executive officer (CEO) positions, largely aiming at modernizing Chinese firms, improving firm performance, and ultimately fuelling sustainable economic growth. However, whether or not the corporate governance reform has actually improved the performance of Chinese firms, especially the state-controlled firms, is still an open question. Specifically, what is the role of the newly emerging Chinese institutional investors in enhancing the performance of China’s publicly traded companies? Have the shareholder-oriented board practices such as appointing more outside directors and separating board chair and CEO positions improved firm performance? Do state-controlled companies perform worse than non-state-controlled firms? Using 1997-2007 panel data on 676 Chinese publicly traded companies listed on the Shanghai and Shenzhen stock exchanges, and qualitative data from in-depth interviews of corporate executives, outside directors, money managers and securities analysts, this chapter aims to address these questions.