A Study Of Governance In Securities Companies

Since 90s of the last century, corporate governance has quickly become a international research topic. In particular, because of the South-ease Asian financial crisis at the end of 1990s and recent scandals of American companies, corporate governance has attracted more attentions. In China, with the progress of the revolution of state owned enterprises, and the growth of the financing of private enterprises, more and more companies have proposed their employer stock option plans and initial public offerings . However, this brings many problems which have never happened in the area of corporate governance. Although the securities companies in China started very late, they grow rapidly. As the transit between the capital market and personal investors, securities companies contribute more and more to the economy. However, because of the incompleteness of the capital market and the market economy in China, there exist serious problems in our securities companies. Especially, the unreasonable governance inside securities companies, has constrained the development of these companies. So, it is important to study and improve the governance inside securities companies. From the micro aspects, this improvement will directly affect people who have financial relation with securities companies (including the owners, directors, managers, creditors of these companies). This improvement will also affect the companies'decision process, management efficiency and their abilities to make money. From the macro aspects, because of the effect of securities companies in the capital market, governance of securities companies affects the quality of the financial market and the ability of the market to get investment and effectively arrange the resources. As a result, it is very important to improve the governance of securities companies, so that it can contribute more to the economy. Our country began to improve the securities companies from August 2004. The object is to resolve the problem and reduce the risk of securities companies, via re-construction of these companies. According to the law, the China Securities Regulatory Commission planed to check the operation, the finical statement and the risk of every securities company. All securities companies should propose the improvement plans which include detailed instructions, the deadline, the progress and the persons who take the responsibility. Those companies, which submit reasonable plans, will have the time between half a year and one year and a half, to take the plan. If the companies can finish the improvement in time and reduce the risk, they will be supported for further development. However, if any company makes false reports, makes less improvement, or continues violation, the company will be punished. According to the law, before the end of 2006, the government will refuse any request to establish new securities company and branches, except some cases which can help reduce the risk and re-construct the industry. On the other hand, there are also plans to encourage the re-construction of existing securities companies. The People's Bank of China, together with the Ministry of Finance and the China Securities Regulatory Commission, will support local governments to encourage and help the re-construction of securities companies. Securities companies should finish the improvement before the end of 2006, with the goals to reduce old risks, defend new risks and develop in a healthy way. Before the end of 2007, securities companies should begin to report real, accurate and complete information. The investment of customers should be safe and complete, and the operation risk should be separated from the society risk. Securities companies should operate according to the law, improve the internal control and the risk management ability, resolve the historical problems, and improve the business model.In this article, the author analyzed the theories of principal-agent and corporate governance, and applied these theories, together with the situation of governance in Chinese securities companies, to find how the effectiveness of the governance in Chinese securities companies is affected by the stock structure and the stock property of Chinese securities companies, and how the governance is affected by the creditors. Additional, the author gave suggestions to solve problems which exist in the internal governance of Chinese securities companies. These suggestions may help to improve the stock structure and governance of Chinese securities companies.