Transfer Of Stated-owned Shares And Listed Companies Corporate Governance Improvement

This paper describes and considers explanations of improvement in corporate governance and transfer of state-owned shares in the Chinese stock market. Corporate governance in China serves to resolve the problem of asymmetric information in managing firms. It is a property rights contract to match the residual claims and residual rights of control. Its key is to determine who should judge, select and dismiss the manager. The purpose of corporate governance exists in resolving the principle-agent problem and decreases agent costs. We discuss and compare the mechanisms of the corporate governance, and we argue that ownership structure is a consequence of investor's self-protection. In the Chinese stock market, there is a common phenomenon that almost 70% shares can not be transferred. They are state-owned shares. Maybe that is one reason that managers are not threatened by the mechanism of corporate governance such as merging and taking over. Furthermore, because of different goals between the state and firms, state-owned shares can not act as a good supervisor in corporate governance. Meanwhile, Chinese inefficient capital and product markets have failed to perform as an outside supervisor. Therefore, inside supervision is serious in listed firms. We argue that it is necessary to decrease state-owned shares to improve corporate governance and rebuild principal-agent relationship. According to recent researches, we find out that even in America, large shareholders and institutional investors are important in corporate governance. And we argue that the corporate shares can be large shareholders and perform good supervision in corporate governance. In order to illustrate our opinion, we have collected 52 cases concerning transferring state-owned shares to corporate shares. We argue that this kind of ownership transfer improve the mechanisms of corporate governance, which includes rebuilding the board of directors, creating large shareholders, constraining agents and supervising insiders. At last, the case of Zhengzhoubaiwen proves our opinion again. The transfer of state-owned shares (Baiwen corporation) to corporate shares (Sanlian corporation) improved the mechanism of corporate governance, and enhanced the corporation value. Therefore, we conclude that state-owned shares should decrease to improve the corporate governance of listed firms in China.