Study On Influences Of Corporate Governance Structure On Corporate Performance In Foreign Shareholding Listed Companies

The fast and sustainable economic growth of China in the past three decades mainly resulted from policies of reform and opening-up since 1978. During this reform, one of the most important aspects is that the property right reform of State-Owned Enterprises (SOEs) under the planned economy system has gradually established a modern corporate system and a market economy system. And there is no doubt that opening-up policies provide foreign capitals with access to Chinese capital market. Particularly, we can observe a conspicuous economic phenomenon in the recent years that more and more foreign capitals flow to China and share Chinese listed companies, bringing profound influences on listed companies' performance, Chinese corporate governance and financial markets. Therefore, we can conclude that along with policies of reform and opening-up going deep into Chinese economy, more and more foreign capitals will flow to China to invest in shares in the future.Theoretically, the emergence of foreign shareholding listed companies will definitely has huge impact on the performance of Chinese listed companies. However, in view of unsound financial system, imperfect market economy system and underdeveloped modern corporate system in China, we can not simply tell what exact influence foreign shareholdings will bring to corporate performance and what different influences various foreign shareholdings will generate. Furthermore, neither by existing theories, nor by research results based on the modern corporations under the system of mature market economy, can we utterly deduce the real status in China. Indeed, even research under mature market economy system has not arrived at a universal conclusion. Under this circumstance, foreign shareholdings of listed companies in China have great meaning in economy.In this study, the following questions are sorted to be answered: what influences do foreign shareholdings bring to governance structure and, further, performance of listed companies in China? Do different kinds of foreign shareholdings have the same influence on listed companies' performance? Through empirical research and analysis, seven important conclusions are achieved as follows.Firstly, diversity of foreign shareholding's proportion and foreign shareholding of financial institutions have positive influences on corporate performance; the fact that overseas corporate shareholders are actually domestic shareholders does not help to improve corporate performance; QFII shareholding has positive influence on corporate performance because its position as a strategic investor, its investment strategy in the non-manufacturing industries and its rallying point in capital convergence. Also, increasing the number of QFIIs and quota of QFII methodically and encouraging financial institutions such as joint venture companies, overseas asset management companies and overseas fund to invest in domestic listed companies are in favor of corporate performance.Secondly, degree of equity concentration is positively related to Tobin's Q and ROA of foreign shareholding companies. The relative concentrated equity is a substitute mechanism for china's corporate governance structure and weak law system that is supposed to protect investors. Therefore, actively supporting merger activities that can bring active effect, improving resource integration and making sure the resources can flow to the high-quality companies freely will have positive effect on corporate performance.Thirdly, financial leverage has no clear relation with foreign shareholding corporate performance. In the current stage, it is hard to say which aspect is dominant for foreign shareholding companies between yields and interest cost constraint generated by financial leverage.In addition, compensation level of senior management is positively related to Tobin's Q of foreign shareholding companies, though it has little influence on ROA and ROE of these companies. In addition, compensation level of directors is positively related to corporate performance of foreign shareholding companies, which proves the effectiveness of board of director (BOD)'s motivation system in the foreign shareholding companies. Therefore, increasing the compensation level of directors is an effective method to improve corporate performance.Moreover, in the linear regression model, the positive the monitoring effect of board of directs on performance is not distinct in the foreign shareholding companies. However, in the quadratic non-linear regression model, in which the size of board is between the range 5 to 19 persons, the relationship between size of board of directors and corporate performance (mainly ROA and Tobin's Q) is positive U-shape, same as the relationship between structure of BOD (proportion of independent directors) and coporate performance (mainly ROE and Tobin's Q). Moreover, in the regression model with dummy variables the existence of board of directors can obviously improve ROA of foreign shareholding companies in which overseas shareholder is their largest shareholder. On the contrast, the increase of proportion of independent directors does not help to improve the corporate performance of these companies.Furthermore, enlarging companies' size is propitious to increasing Tobin's Q of foreign shareholding companies, while size of company has no clear relation with ROA and ROE. ROA is mainly affected by the factors such as industry, tax policy, if companies have exclusive advantages on price strategy, marketing strategy and technology, brand value and leading position. ROE is mainly affected by factors such as turnover rate, variable cost control like salary and materials, control of administrative expenses and financial expenses, non-recurring profit and loss, income tax, financial leverage, ROA, if the macro environment is in the inflation stage and if the increase of cost can be transferred.Last but not least, we find that overseas shareholders prefer listed companies in the non-manufacturing industries and are willing to pay certain premium for those companies. From the perspective of listed comapanies, the target of becoming the "world manufacturing centre" can not only rely on attracting overseas capital, but also rely on China's advantages of low labour cost and good location of raw material which is close to the terminal of sales of products.The findings of this research reveal the cause and effect relationship between corporate governance structure of listed companies with foreign shareholdings and corporate performance, which plays an important role in understanding foreign shareholdings' impact on the opening-up of Chinese capital market and economic growth from the theoretical perspective. In addition, these results as reference are very important for listed companies to optimize their shareholding structure, to improve efficiency of corporate governance, and further to enhance corporate performance. Besides, to some extent they may inspire government with related policies of economic growth.