Ownership Structure, Institutional Environment And Corporate Governance

The mainstream of modern theory of firm has some important limits on the research of corporate governance because it is lack of thorough discussion on the internal structure of shareholders (or proprietors). The evolution of firm's institutions indicates that reconstructing the structure of equity ownership is the kernel matters and the motive force for optimizing the institutions of firms and the patterns of corporate governance. The assets owned by shareholders are the primary premise for a company's existence. The shareholder' rights and interests are the root for other rights and interests from the same company. The relationships among different shareholders, especially the agent relationships between the outside shareholders and the dominant shareholders (or the board dominated by them), are the start point and the determinant element for other types of agent relationships in a company. Therefore, the corporate governance should commence with the inner-shareholders governance. That is to say that we should put the focus on finding the solution to the interests conflicts between outside shareholders and dominant shareholders (or board of directors) and resolve the agent problem between them. The shareholders' rights and interests are restricted and embodied most directly by the structure of the equity ownership, and the latter determines the detailed forms of corporate governance patterns and expresses its some essentials by it. To a great extent, the institutional environment rules the evolution paths and the typical traits of equity ownership structure and corporate governance patterns. The evolutionary paths and typical traits of the forms of corporate governance pattern differ in different countries or in a country's different phrases. Dependency shipments on institutions for existence decides that there is none a optimal corporate governance pattern witch could be good for different countries or for a country's different phases. Under an imperfect institutional environment (it is a extensive notion, including imperfect competitive market mechanism, regulations, laws, cultural traditions, ideas and values etc, which do harm to the corporate governance, especially to the outer-firm governance), we should place the emphases upon the inner corporate governance. Drawing lessons from other country's experience must be accorded with actual institutional environment. On account of the imperfect institutional environmentof our country, we should pay more attention to inner-firm governance, and the most important thing is how to resolve the agent problem between the outside shareholders and the dominant shareholders.The mainstream argues the concentration of equity ownership has a positive correlation with firm value; and moderate structure of equity ownership (coexistence of the relative concentration of equity ownership, some relatively dominant shareholders and some other major shareholders) is better for improving corporate governance and performance (Sun Yongxiang and Huang Zuhui, 1999). Under moderate structure of equity ownership, there exist some no cooperative repetition games among the dominant or large few of shareholders. Because no one can predict the times of games, every one who takes part in the repetition has to commit according to no limits for game times. Long-term benefits make them abandon the short-term interests and cooperate more. Therefore, the pursuit for personal rationale leads to collective rationales, no cooperative games are transformed to cooperate ones, and no cooperative competition is replaced by competitive cooperation. Furthermore, the dominant shareholders control the company by establishing alliances, which make the governance more stable. The board of directors becomes a qualified delegate for the alliances shaped by dominant shareholders. The interests' conflicts and agent's problems between outside shareholders and dominant shareholders are minimized and all the stakeholders' rights and interests will be protected more effectively.According to t...