Evolution And Development Of Corporate Governance In Transitional Economy

Both China and Russia were socialist countries under central-planedeconomy. China began its economy transformation since1970s while Russiadid in1990s. Though both have nearly completed their economytransformation and established modern corporate system now, there are stillsignificant differences. And the reason why the corporate governancecharacteristics of these two countries with similar background are quitedifferent is a good topic for study.This article is mainly based on corporate governance and transitionaleconomy theory, and uses Williams’s four-level institutional economicstheory as guideline. Firstly, corporate governance characteristics of Chinaand Russia are compared and analyzed in detail, and then40biggestcompanies are selected separately for empirical study, and finally differencesof corporate governance between these two countries and some conclusionsare explained in terms of informal and formal institutional arrangement.Through the detailed comparison, some similar points and differences ofcorporate governance characteristics concluded are presented below:Similar points1) Inefficient corporate governance and operation at earlytransformation stage;2) Unsuccessful roles of board and independent directors; 3) Serious insider control problem at early transformation stage; and4) High equity convergence, low liquidity and poor protection for smallshareholders.Differences1) High equity convergence problem and insider control problem are stillserious in Russia nowadays, while these problems have been improvedin China since the share merge reform in2005; and2) The consistency of dividends and protection for small shareholders inRussia are still poor today, while the situation is much better in China.After explaining above problems in terms of informal and formalinstitutional arrangement, we conclude that several unsuccessfulreformations and the mass privatization directly result in Russia’s currentcorporate governance, while the fundamental reasons are its centraldespotism, westernized civilization, extremism, violence, anarchism andleaders’ wrong decisions; in contrast, several gradual reformations andleaders’ wise decisions directly result in Chinese corporate governance, andthe fundamental reasons include the traditional culture,“the golden mean”,strong governmental functions and supports from the masses.Aiming at the corporate governance problems of Russia and China, we thinkthat Russia should enhance its governmental factions and legal system tosolve the insider control problem, and improve the independent directorsystem and strengthen protection for small shareholders; while China shouldcontinue its share merge reform and also improve the independent directorsystem, the securities market and the legal system.