Corporate Governance Mechanisms And Financal Performance Of Firms Listed On The China Stock Market

The separation of ownership and control has been a prominent subject of debate in the corporate finance domain since the beginning of the 20^th century.The expansion of corporations creates a situation where the owners of wealth(principals)must appoint certain individuals(agents)to manage their wealth.If the shareholders hire managers who are self-interested while they cannot perfectly monitor them(or cannot even hire the right type of manager),these managers are likely to pursue their own wellbeing at the expense of shareholder value.f shareholders do a perfect job and hire managers with deal blend of attributes then still moral hazard problem could manifest.Even though ex ante the manager may be the correct type of manager,ex post after being hired,the manager may choose to shirk,invest in undesired projects,or extract excess perquisites from the firm.Many recent corporate scandals around the world highlight the detrimental effects of separation of corporate ownership and control.The current study examines four types of internal corporate governance mechanisms that are relevant to China that are intended at minimizing agency problems.From the best of our knowledge,the study is the first to address this combination of corporate governance mechanisms.Most important this study investigates the relation between executive compensation mechanism and state ownership mechanism in the period post the renewed reforms that commenced after the 18^thCongress of the Chinese Communist Party.Further the study investigates the relation after the publication of,“Guiding Opinions of the CPC Central Committee and the State Council on Deepening the Reform of State-owned Enterprises”n 2015(the“1+N”policy system).Specifically the study examines the impact of the board structure mechanism,executive compensation mechanism,ownership concentration mechanism and state ownership mechanism on performance of 1265 firms listed on the China stock market(Shenzhen and Shanghai)from2010 to 2016.The study uses a combination of econometric methodologies but focus mainly on those that address the problem of endogeneity which is pervasive in the corporate governance research domain.n the board structure mechanism and the executive compensation mechanism investigation,the man econometric methodology s the dynamic system generalized methods of moments(System GMM)while the correlated random effects(CRE)and the hybrid models(HCRE)are estimated n the ownership concentration models.The state ownership and firm performance relation s investigated using the fixed effects model(FE).However the study estimates the OLS and Dynamic OLS for purposes of comparison of results with those from previous studies.n this thesis,the first chapter gives a comprehensive review of the whole study,discusses the context.Furthermore a discussion on the problem being researched,objects along with the research questions are also given.Last t s n this chapter that research contributions and limitations are also discussed.A detailed literature review related to the current study is given n Chapter 2.First theories related to the study are reviewed and followed by an empirical review of related studies.Chapter 3 of this study presents the selection of variables,hypotheses development and the conceptual framework of this study.Chapter 4 presents a discussion on the data,sampling and methods used in the current investigation.Chapter 5 comprises a discussion on the board structure CG Mechanism relation on performance of PLCs.Chapter 6 presents a discussion concentration ownership CG mechanism on financial performance of China's PLCs.Chapter 7 then follows with a discussion on the impact of Executive Compensation CG Mechanism on Financial Performance of listed Firms.Chapter 8 follows with a discussion on the government equity ownership relation with performance of listed PLCs.The study concludes with Chapter 9 which provides the broad conclusions,policy implications and suggestions.in addition limitations of this particular research including the guidelines for future research direction are also given.The study produced some interesting results.First,the study confirms a U-shaped non-linear relationship with firm performance and establishes the inflexion point at where expropriation appetite vanishes.Second,the study finds some support for the board structure mechanism although its impact is not entirely convincing.Third,the results show that both current and past firm performance,positively influence executive compensation contracts.Although the Renewed Mixed-Ownership Reform was launched at the 18^th National Congress of the Chinese Communist Party in 2012,its influence on executive compensation began to have material effect after the issuance of,“Guiding Opinions of the CPC Central Committee and the State Council on Deepening the Reform of State-owned Enterprises”n 2015(the“1+N policy system).The extensive reforms positively influenced the role of state ownership n CEO compensation contracts negotiations after 2015.Last,the results of the study show that state ownership has an overall negative influence on firm performance.Although state ownership has continued to drop in the reform period,t remains very high n strategic sectors such as oil and gas,petrochemicals,aviation,and coal mining.The results also show that,although performance of SOEs remains low compared to non-SOEs,their performance improved during the reform period.Overall the results of this study show that the role of the state n SOEs generates lower firm values compared to non-SOEs suggesting the state's potential expropriation power of minority shareholders.The study recommends more ownership structure reforms,more executive compensation tools and adoption of a principle based approach to board structure rather than rules based or legal based approach.