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Xinrong Zhang

DBA Graduate - 2007

Thesis title

Exploring the Specialty of Governance Structure of Publicly listed Companies in China


Jean-Jacques Chanaron-Externe
In the early 1990s, the first listed company went public in China; just 15 years later, the number of publicly listed companies in China reached to 1287. Furthermore, their corporate governance mode dominates Chinese corporate culture, so research into their corporate governance structures has become an important focus in both academic and business fields. This thesis therefore first reviews the background of corporate governance theories, analyses some basic modes, and clarifies understanding for these modes. The external environment of corporate governance for publicly listed companies in China continues to change dramatically, which suggests the need to study three critical factors that describe internal corporate governance structures: the ownership structure, composition of the board of directors, and financing structure. By considering their correlations with operational performance, this thesis offers theoretical hypotheses, then tests them with data from 350 publicly listed companies. The results indicate several unique elements of the corporate governance structure of publicly listed companies in China: state-owned shares that dominate ownership structures, stock conversion, extreme low debt ratios, preference for equity financing, opposite market performance, and negative effects of independent directors. The empirical analysis reveals that the debt-to-assets ratio is negatively correlated with operational performance; P/BV and the independent directors’ ratio on the board also correlate negatively with operational performance; but assets correlate positively with it. The other variables have no notable correlation. The dominance of state-owned shares reflects the complicated historical background and prevalent issues in China. Only one-third of these shares can be traded on markets, which is a unique feature of the corporate governance structure of publicly listed companies in China. Although this analysis offers some relevant results, the defects in the external corporate governance environment may not allow those conclusions to offer suggestions for the future development and implementation of corporate governance. Instead, it is urgent to undertake deeper reforms to the governance structure, complete related legislative systems, and encourage the active participation of related market parties in reform. The profound reforms of the external environment, with added measures for diversifying ownership structure and reducing the separation of control and ownership, imply that the corporate governance structure will be totally different in the future. This thesis predicts the changes and offers some suggestions for policymakers and researchers.