Corporate Governance and Protection of the Rights of Minority Shareholders in China

Abstract

The issue of corporate governance in China is examined in this study. We identify several important governance mechanisms for China’s publicly listed companies and construct four sets of variables based on these mechanisms. The variables include measures of ownership structure, the board, managerial incentives, corporate control, and financial transparency. We then create a ranking index for corporate governance (G-index) based on these variables. Finally, we relate the G- ranking index to measures of corporate performance. We find that better-governed companies are associated with higher profitability as measured by ROA and ROE, higher stock market valuation as measured by the ratio of market value and book value of the net asset, and lower market turnover ratio. The results indicate that good corporate governance matters greatly in China’s emerging stock market.