Internal Governance Mechanisms Of Listed Companies And Performance

In recent years, China's listed companies develop rapidly. Previous research shows that, by the end of 1990, the amount of listed companies from Shanghai and Shenzhen Stock Exchange is only 10, with a total market capitalization of 3.1 billion, accounting for only around 0.17% of GDP in that year. However, in the end of 2009, the numbers have respectively increased to 1700,242.7 trillion and 72.37%. Listed companies have become an important part of our national economy and the backbone of social development. Consequently, its operating performance attracts more and·more attention. In this situation, strengthening the research for listed companies is not only helpful for their rational understanding and evaluation, but also is essential to their operation and development.This dissertation aims to study the relationships between the internal governance mechanisms and operating performance for China's listed companies. To this end, this dissertation first gives a detailed survey of existing research works on this topic and identifies their limitations and weaknesses. Then, this dissertation deeply analyzes the relationships between the single/joint management mechanisms and operating performance for China's listed companies. Finally, on this basis, this dissertation makes a number of policy recommendations.This dissertation can be divided into five parts:The first part is introduction. In this part, we first introduce the research background and motivation and then give the basic concepts and scope for this study. After that, we present our research objectives and contents. Finally, we describe the data sources, research methods, innovation, and limitations for this study.The second part is literature review, only consisting of chapterⅡ. In this part, with the standard of whether taking into account endogeneity and dynamics or not, we details the latest research trends of ownership structure, board structure, the joint corporate governance mechanisms and performance on both at home and abroad. In addition, we point out the limitations and improvement direction through comparing domestic with foreign research. The literature review shows that corporate governance is not only endogenous but also dynamic in impacting performance, which is confirmed by more and more evidence in both abroad and domestic studies. If this is not considered in empirical research, biased conclusions would be drawn.The third part is theoretical research, ChapterⅢin this dissertation. In this part, we first summarize the theoretical basis and then introduce the empirical method used for this study. In other words, this part describes the sources, impacts, solutions for endogeneity and gives the theoretical analysis framework for dynamic endogeneity.The fourth part is empirical research, consisting of ChapterⅣ, ChapterⅤ, and ChapterⅥ. In this part, we investigate the relationships between internal governance mechanisms and performance. The organizations of ChapterⅣand ChapterⅤare similar:first, we examine their relationships without taking into account endogenous; then, we examine their relationships with taking into account endogenous; finally, we examine their relationships from a dynamic and endogenous perspective and the purpose of this is to discover the differences between their relationships under different conditions. In Chapter VI, we use simultaneous equations models to investigate their relationships where the influence of interaction among endogeneity variables is considered.The fifth part includes the conclusion and future work. In this part, we summarize our research results and conclude the dissertation. In particular, we . propose a number of possible measures which could be taken to improve the governance corporate performance for China's listed companies. Finally, we outline the directions for the future work.The contributions of this dissertation are summarized as follows. First, in the perspective of research, we take into account not only the endogenous but also the dynamics which may exist between corporate governance and performance. To the best of our knowledge, most previous studies, a priori, take corporate governance as an exogenous variable to deal with and hence ignore impact of endogeneity. In addition, only few studies take into account the dynamic nature and inter-period effect between governance mechanisms and performance. Second, in the research contents, we not only investigate the relationships between individual governance mechanisms and performance, but also analyze the substitution effect which may exist among governance mechanisms. This enables us to comprehensively understand their relationships under the interaction effects of endogeneity variables. However, existing studies only make a single mechanism or interaction mechanism research. The research combining between them is rare. Third, on the methodology front, we investigate the relationships between governance mechanisms and performance using not only the familiar method of OLS but also FE,2SLS, and GMM. Consequently, we are able to compare the conclusions under different hypotheses on their relationships. Fourth, we provide a unified framework to explain the inconsistent conclusions from previous studies. As for the relationship between ownership structure and corporate performance, the results from existing studies are inconsistent. Although most studies conclude that it is an "inverted U" shape, there are also a number of studies considering it be a "positive U" shape. In this dissertation, after considering the effect of endogeneity problems, on the one hand, we find that there indeed is a "W" shape between management ownership and performance in China's listed companies. On the other hand, we find that there is an "N" shape between the largest shareholder and performance. These results not only can be used to explain the "positive U" shape, but also can be used to explain the "inverted U" shape. Consequently, the different opinions from existing studies are unified. In particular, the calculated results of equity share of China's listed companies coincide with the actual situation, which indirectly supports this argument.The policy implications drawn from this dissertation are as follows. First, owing to the endogenous properties of corporate governance mechanism, we can not simply copy the Western model when build the structure of equity and board. We should establish the best model suited to our business development according to the actual situation of China's listed companies. Second, the interaction between governance mechanism and operating performance is complex, which can be same-period or cross-period. This has a significant implication for the building of China's independent director system, as well as for the implementation of equity incentive policy. Third, the overall performance of companies would be improved if the proportion of the first major shareholding is reduced to some extent. This implies that the split-share reform should be continued for the listed companies that have a high proportion of state-owned non-tradable shares. Finally, we should pay more attention to substitution and complementary effects of different mechanisms when improving corporate governance.