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Legal Environment, Corporate Governance And Expropriation

Posted on:2008-06-16Degree:MasterType:Thesis
Country:ChinaCandidate:L H BaiFull Text:PDF
GTID:2166360215452543Subject:Accounting
Abstract/Summary:PDF Full Text Request
As the separation of corporation ownership and control right nowadays, the problems of corporate governance emerged. Highly concentrated ownership structure will help to deal with the agency problems widely exist in corporation nowadays, which is the interest conflict between the shareholder and the manager. But the majority shareholders are not always in line with the minority shareholders as far as the goal concerned, the majority shareholders have the interest maximization incentive, what's more, they have the control right, so they may pursue on something which will damage the interest of minority shareholders in order to get the private benefits from control, this behavior of majority shareholder leads to the expropriation of minority shareholders. The majority shareholders expropriation of minority shareholder will be influenced by the environment of legal investor protection and security market regulatory, it will also be influenced by the corporate governance structure from inside the firm. Since China and U.S. have different legal environment and security market regulatory environment, we select the Chinese companies listed on U.S. and China exchanges as our sample, use empirical study methods, in order to investigate in different legal environment of China and U.S., the differences of expropriation caused by corporate governance differences. Furthermore, this paper analyze the corporate governance structure arrangements in a more detailed and comprehensive way, this will help us to analyze in different legal environment and regulatory environment, corporate governance behavioral differences, and the resulting differences in expropriation and corporate performance differences. This study is very meaningful in strengthening the supervision and regulatory of Chinese securities market, make it more standard in operation, improve the corporate governance structure, reduce the expropriation and protection of minority shareholders.We select 50 Chinese firms listed in U.S. exchanges and 50 matching Chinese firms of the same industry and size listed in Chinese exchanges as our samples, to study the influence of legal investor protection and security market regulatory to majority shareholders'expropriation. After compare the Chinese firms listed in two exchanges, we found that in Chinese firms listed in the U.S. exchanges, the majority shareholders'expropriation behavior is lower, and the corporate governance structure is more effective in general, also, Chinese firms listed in U.S. exchanges have better performance and higher market value. Through analysis of the factors influencing the expropriation, we found that the difference of expropriation between Chinese and U.S firms can partly be explained by their corporate governance differences. Higher expropriation can reduce the corporate performance, when we regress the corporate performance on expropriation, we found that majority shareholders expropriation is negatively related to corporate performance, and in China, where the legal investor protection is poor, expropriation's negative impact on corporate performance is higher.First, we use the mean and median compare test to investigate the corporate performance, market value, majority shareholders'expropriation and corporate governance structure of firms listed in the two exchanges, which are Chinese exchanges and U.S. exchanges. We found that, in the U.S. listed Chinese firms, majority shareholders'expropriation is lower, better legal investor protection and security market regulatory environment can restrict majority shareholders'behavior to some extent, which can reduce the expropriation to minority shareholders. In addition, Chinese firms listed in U.S. exchanges have more effective corporate governance structure generally, their performance and market value is also better than matching firms listed in Chinese exchanges. Since the U.S listed sample firms of our study are from NASDAQ and NYSE, and they have different market position, so we make the compare test of NASDAQ and NYSE sample firms respectively, the results show that difference in expropriation, performance, market value and corporate governance still exist in matching sample firms.Second, we use Analysis Of Variance method to analyze the relation between corporate governance and the majority shareholders'expropriation. We use the ratio of other receivables to total assets as our dependent variable, which indicate the expropriation, the independent variables are the corporate governance structure arrangements and the some interactions of them. Among the main effects, except the dual variable, the independence of board, non-board CEO, whether the internal governance exists and the independence of audit committee are all significant statistically. They can explain the difference of expropriation between China and U.S. listed Chinese firms to some extent. As to the interaction effect, the interaction of internal governance and non-board CEO, the independence of audit committee and non-board CEO, dual and the independence of board, non-board CEO and the independence of board are all significant statistically too. That means, difference in corporate governance can explain the difference in expropriation between China and U.S. listed firms to some extent. Furthermore, although legal can restrict majority shareholders'expropriation activity in some way, but the more effective corporate governance in U.S. listed Chinese firms can explain their majority shareholders lower expropriation in another way.At last, we use regression analysis to study the impacts of majority shareholders'expropriation on corporate performance and market value, we also study the difference of this impacts between China and U.S.. The majority shareholders'expropriation may affect the normal operations in corporations, which will leads to worse performance, meanwhile, market will react to this expropriation, which will finally reduce the corporate market value. We use the performance and market value variable as the dependent variable, use the ratio of other receivables to total assets, which reflect the expropriation, as the independent variable, the results of regression suggests that, the coefficient of other receivable to total assets ratio is significant negative, that is majority shareholders'expropriation is negatively related to performance. When we regress performance on the expropriation and the multiplication of expropriation and law variable, the coefficient of expropriation is negative, the coefficient of multiplication is positive, that is, the majority shareholders'expropriation may reduce the company performance. When the Chinese firms listed in U.S., the expropriation is lower, as a result, their performance is better. The coefficients of the multiplication and the expropriation are different suggests that, the legal investor protection is good in U.S., the negative effect of expropriation to performance is smaller. As to China, the legal investor protection is poor, the expropriation has greater negative impact on company performance.Through studying of firms listed in Chinese and U.S. exchanges, we find that, legal investor protection in China is far from enough, securities regulation are still insufficient to constrain expropriation behaviors of majority shareholders, as a result, the majority shareholders expropriation activities are very extensive, which have serious impact on company performance, and also damaged the interests of minority shareholders. At the same time, internal governance mechanism is not sufficient in firms listed in Chinese exchanges and as a result did not act effectively in restricting the majority shareholders'behavior. This study will help us learn from the mature capital market in developed countries, provide new guidelines in strengthen our security market regulation, improve corporate governance and protect minority shareholders.
Keywords/Search Tags:Expropriation
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