Corporate Governance in China: Current Practices, Economic Effects, and Institutional Determinants

Abstract

In this paper, we provide a preliminary survey of the burgeoning literature on corporate governance in China. We structure the existing research around three themes: (1) What are the current corporate governance practices in China? (2) How do these corporate governance practices affect Chinese firms’ valuation and various corporate policies? (3) How does China’s unique institutional setting pre-determine the governance model adopted in China? The evidence indicates that the current governance practices adopted in China can be best described as a control-based model, which contrasts strikingly with the market-oriented model commonly used in the US and UK, and championed by most corporate governance advocates. The evidence also shows that Chinese firms, whose corporate governance practices deviate from the control based model, demonstrate stronger performance, and tend to make decisions in line with the shareholders’ interest. The evidence from the literature also suggests that the control-based model root in the ‘administrative governance’ approach adopted by the Chinese regulatory authorities, and is tailed to China’s specific institutional setting.