On Corporate Governancve Under Financial Innovation

In the1980s of the20th Century, when research boom of corporate governance was emerging all over the world, financial innovation and corporate governance were two concepts with no relationship. However, with the increasingly deepening of economic and financial globalization, rapid development of capital market, rapid rise of institutional investors and rapid changes of financial innovation, company law and financial law are no longer completely separated and begin to integrate together. As the typical mapping of the integration, there have been phenomena of interlacing and interaction between financial innovation and corporate governance. Except nice picture of integration brought by financial innovation, new conflicts of interest in corporate governance are becoming increasingly fierce. Especially in the financial crisis in2008, as the products of financial innovation, equity decoupling and debt decoupling thumped the real economy, increased systemic risk in financial market and played an important role in the process of diffusion and spread of the crisis. After the financial crisis, the rules of corporate governance and financial regulation have experienced a major change, but these changes in international capital market are inadequate to deal with equity decoupling and debt decoupling, so it is necessary to promote further regulatory changes. This paper mainly study legal issues of corporate governance under financial innovation, and the main contents include the following four aspects.1. The interactivity between financial innovation and corporate governanceUnder the context of economic globalization and the domain of capital market, there exist close relationship between financial innovation and corporate governance. On the one hand, investors revolution, shareholders activism and convergence changes in corporate governance brought by financial innovation deeply affect company law and profoundly change the external environment of corporate governance; on the other hand, corporate governance can be well explained in theoretical framework of financial law, including capital structure theory, financial contract theory, law and finance theory, so corporate governance has become one of the core conceptual category. Furthermore, the interlacing points between financial innovation and corporate governance are increasing, with asset securitization as a representative. As a result, corporate governance contains factors of financial innovation, and vice versa. With the interlacing between financial innovation and corporate governance, the integration trend of company law and financial law is increasingly obvious, company-finance law is taking shape, and the rules of capital market are facing structural changes.2. The new challenges for corporate governance brought by financial innovationTraditional corporate governance theories are based on certain rational basis, including rights separation between ownership and control, homogenization of shareholders, the equalization between rights and interests, the correspondence between voting rights and economic interests. However, under the impact of financial innovation, the separation between ownership and control is toward integration, homogenization of shareholders is toward heterogenization of shareholders, the equalization between rights and interests in real economy is toward non-equalization in virtual economy, and correspondence between voting rights and economic interests is toward non-correspondence. Because of changes of the rational basis, corporate governance is facing a paradigm crisis. At the same time, traditional theories of company law, including agency cost theory and fiduciary duty theory, are hard to justify themselves in front of financial innovation, and traditional principles of company law, including shareholder primacy and one share-one vote, are facing applicable dilemma. To adjust corporate governance theories, we need to establish the idea of investor primacy instead of shareholder primacy, establish the idea of multilateralism regulation instead of unilateralism regulation, and establish the idea of "capital and labor are employed each other" instead of "capital employing labor" and "labor employing capital". At the same time, we need understand that investors in capital market are heterogeneous instead of homogenous, the beneficiary of faith obligation should include creditors instead of limiting to the company and shareholders, and listed companies should be miniature society instead of expanded individuals.3. Conflict of interests in corporate governance caused by financial innovationThe types of conflict of interests in corporate governance caused by financial innovation mainly include equity decoupling and debt decoupling. Equity decoupling refers a phenomenon of the separation between shareholders'voting rights and economic ownership, which means voting rights and economic interests are no longer in correspondence. Debt decoupling refers a phenomenon of the separation between debt benefits and debt risks, which means creditors are no longer concerned about the company's life and death, even hope and let alone the company's bankruptcy. Equity decoupling and debt decoupling break the harmonious pictures of correspondence between voting rights and economic interests, distort rights, obligations and responsibilities structure between shareholders and creditors, pose a serious challenge to the basic principles and systems of company law, deteriorate the external environment of corporate governance, and trigger complex conflicts of interest and institutional myth, such as "Who owns the company","Management services whom","What is the boundary of corporate governance", etc.4. Legal regulation on equity decoupling and debt decouplingAfter the financial crisis, the rules of corporate governance and financial regulation have experienced a major change, but these changes are inadequate to deal with equity decoupling and debt decoupling, because these changes are limited to pure equity governance mode, are difficult to regulate moral hazard of institutional investors, are short of special rules of protecting medium and small investors and are lack of the system design of public power intervening corporate governance. To regulate equity decoupling and debt decoupling, we need to choose the right regulatory path in order to prevent additional cost because of path selection error, including cooperation regulation path with contracts and public power and evolutionism regulation path. In the meantime, we need to design reasonable rules to curb moral hazard of institutional investors, realize benign interaction between financial innovation and corporate governance, and promote the integration of company law and financial law. The reasonable rules include establishing essential information disclosure principles, limiting voting rights of market-driven institutional investors and depriving improper benefit of empty creditors in the process of bankruptcy. In addition, we should pay attention to China's problems with aboriginality in aspects of financial innovation, corporate governance and capital market, and design targeted specific rules in order to achieve the equilibrium of interests in listed companies.