Regulation On Corporate Governance:an Analysis Under China’s Transitional Economics

In recent two decades, regulators have raised revolution on corporate governance regulation on a world-wide scale. The earlist systematic national corporate governance code,’Cadbury Report’was implemented by the UK in2002. After that, Asian financial crisis of1997trigered extensive attention to the regulation on corporate governance across nations. Correspondingly, Organization for Economic Cooperation&Development (OECD) issued’OECD Principles of Corporate Governance’. At the beginning of21st century, a series of corporations in the US, such as Enron, WorldCom, and Tyco bursted out into scandles, which aoused a national act, i.e.’Public Company Accounting Reform and Investor Protection Act’(also known as the Sarbanes-Oxley Act) enforced in2002. This act actually somewhat turned the American regulators’attention from the mechanism of market-based regulation on information disclosure to the regulation on firms’internal policies and internal corporate governance structure. Further, the world-wide financial crisis aroused by the U.S. subprime crisis has swept the global economies. Hence, another federal act in the U.S.’Dodd-Frank Wall Street Reform and Consumer Protection Act’has been enforced in2010. The Act creates rules on severeal specific internal corporate governance mechanisms, such as executive compensation and corporate governance structure. How should China, a transitional country, response to this wave of the revolution?My study argues that not only market mechanism but also government should take responsibilities for corporate governance revolution so that investors can be protected better. However, as a developing country, China has its specific institutional background which shouldn’t lead to the same regulations as what the developed coutried have. Furthermore, empirical evidence shows that even if the Anglo-Saxon Model which embedded in similar culture, law, politics and economics in the UK and the U.S. has different practices. Therefore, it is necessary to analysis the characteristics of China’s transitional economics so that the regulation on corporate governance could be efficiently and effectively enforced.Although practically, regulators tend to pay more attention to corporate governance recently, the research on this issue has not yet been well developed. Comparing to the hot-debated practive, this field remains relatively unexplored in academic. The pioneering paper by La Porta, Lopez-de-Silanes, Shleifer and Vishny (1997) argue that the legal approach is a more fruitful way to understand corporate governance and its reform than the conventional distinction between bank-centered and market-centered financial systems. Their research opens a door to research on regulation and corporate governance, and consequently, quite a few papers investigate this issue (Gillan,2006)However, extant research has limitations as follows. First, the majority of literature focuses mainly on a specific policy rather than a systematic mechanism of corporate governance. There is no literature analyzing and discussing national regulation on corporate governance as a whole. Second, there is no logical theoretical framework supporting analyzing corporate governance regulation. Third, there is less concern on transitional economics about corporate governance regulation, despite the fact that the research on regulation in transitional countries might contribute to corporate governance research more due to their incomplete mornitoring mechanisms.Based on this theoretical and practical background, my study interprets corporate governance theory first, and then focuses on explaining the characteristics of China’s transitional background. Sequentially, I conduct a comparative study on international corporate governance code and propose their enlightments on China’s corporate governance regulation. I also build up a theoretical framework for analyzing corporate governance regulation. By use of that framework, I discuss corporate governance regulation in China in details. Finally, I point out the problem existing in China’s regulating system and provide several improvements in the future policies making.The study contains nine chapters. Chapter1is the introduction. Chapter2discusses the classical theores for analysing corporate governance issues. In Chapater3,I propose a conceptual framework of corporate governance mechanisms. Chapter4analyses the general institutional background of corporate governan in China. The characteristics of corporate governance under China’s transitional economics are reported in Chapter5. Chapter6compares international corporate governance codes and sheds lights on their reference to China’s revolution. Chapter7and Chapter8provide the general analysis and detailed discussion of/on China’s regulation on corporate governance, respectively. Finally, a framework for supporting a systematic regulation system is constructed in Chapter9.The main research methods in this paper are qualative method, comparative analysis and interdisciplinary study. My study contributes to the literature, policy making and corporate governance practice in several ways. Regarding the contributions to literature, my research:first increases the literature on the relation between regulation and corporate governance and provides an integrate framework for this stream of research. Second, this is one of the pioneering works on external corporate governance mechanisms. Third, this work is initiative in terms of constructing a framework for regulatory system of corportate governance under China’s transitional economics. Fourth, even developed countries are struggling with corporate governance regulation; the research based on transitional background will enrich the literature relevant to this.As far as the contribution to policy making into concern, my study:first compares international corporate governance codes, analyses the characteristics of China’s transitional economics, and provides a comprehensive perspective on understanding regulatory policies on corporate governance. Second, it reports the general and detailde analysis of corporate governance policies in China, providing supports for the empirical examination on regulatory power. Third, my study constructs a framework for regulatory system of corporate governance in China, suggests improvement of current regulatory system, and provides reference for the proceeding revolution on corporate governance either in practice or in regulation.There are also some limitations of my study. First, I haven’t provided empirical evidence on the analysis of regulatory policies. This shortcome is coming from China’s specific institutional background. Because event study should be the proper method for understanding regulatory efficiency, however, the institutional environment has kept changing in the last decade; therefore, it seems like impossible to control the problems from event study, i.e. endogeinity and noises. That is also why I have to accept the detailed qualative research method. Second, there might be lagged information on the analysis of China’s comprehensive corporate governance principles. The first corporate governance code in China,’Code of Corporate Governance for Listed Companies in China’was implemented in2002; however, after its implementation, Chinese institutional background has been dramatically changed especially after the new amended’Security Act’and ’Corporate Act’in2005. Due to the new acts, several items of Code of Corporate Governance for Listed Companies in China’became stale. Meanwhile, China Securities Regulatory Commission issued’Provision on the Supervision and Administration of Listed Companies’in2007, which is still in the process of seeking for advice. It is unclear if the original stated items will be changed or not when it is finally implemented one day.