Bailey Kelly
FIN 5311-70
Dr. Owens
5 June 2018
Corporate Governance in China.
Corporate governance is defined as a system of rules, practices and processes by which a
firm is directed and controlled. It basically involves balancing the interests of a company’s
stakeholders, whether that be the management, the shareholders, the government or even the
community. Since corporate governance also provides the framework for attaining a company’s
objectives, it encompasses practically every sphere of management, from action plans
and internal controls to performance measurement and corporate disclosure. Corporate
Governance is made up of several things including the Board of Directors, religion, culture and
of course as with anything, it comes with a rich history especially in China.
The Board of Directors can have a major impact on governance and can be very pivotal.
This board is built up of individuals who are elected to represent the shareholders of a company.
Their basic duties consist of anything from establishing policies for corporate management and
also making decision on major company issues. These major decisions are things such as hiring
or firing senior executives, dividends and option policies as well. The Board of Directors run the
show and assure that the company is well prepared and ready for anything that comes their way.
In 1978, the Chinese government launched an open-door policy and since then, it has
continued to reform the corporate policies of state owned enterprises(SOE) and has improved
connections between their state and market economies. With the SOEs, China has progressively
privatized them, in doing this they are raising funds for expansions and to increase efficiency.
Most Chinese listed firms were established through the privatization of SOEs. To maintain their
dominant position, equity in listed firms is divided into A-shares, B-shares, H-shares, state-
owned shares, institutional shares, employee shares and other shares, but only A-, B- and H-
shares can be freely traded. A- and B-shares are generally traded on two domestic stock
exchanges whereas H-shares are traded on the Hong Kong Stock Exchange. Before the share
reform of 2005, state shares could not be traded on any stock exchange.
There are many shareholders throughout corporate governance, with that there come
smaller and larger ones. Larger ones can have a positive and a negative impact on the firm value.
They ultimately have large amounts of control and can oversee the actions of management and
the directors, this is called the monitoring effect. In addition, the largest shareholder can
dominate and manipulate the firm making themselves the controlling shareholder. By becoming
