The evolution of corporate governance in China: The effects of ownership on Chinese listed companies

Jason Pettman & Navchaa Lamjav

Student thesis: Master thesis


This thesis examines the evolution of corporate governance in China through the transition process. As corporate governance reform in China is an integral part of a program of wider economic reform, a general stakeholder perspective that accounts for the role of external investors, the political system and the role of the State was adopted. In order to provide a theoretical perspective, the paper reviews key literature pertaining to corporate governance systems, internal and external governance mechanisms, and specific features of transitional economies such as high ownership concentration, weak institutional environments, and the prominent role of State-owned enterprises that are likely to affect the implementation of good corporate governance practices. The specific case of China is then examined both in terms of its historical development and current situation. Chinese social and cultural traditions, the role of the stock market and Chinese institutional reform were identified as areas of attention that may play a role in implementing a functioning corporate governance system in China. In light of the significant role the restructuring of SOE’s plays in China’s economic reform and development of a corporate governance system, the paper proceeds to examine empirically the affects of ownership on the performance of Chinese listed companies. Although the study produces inconclusive results, it does provide some insight as to the perceived importance of ownership to private investors. The paper finds ultimately that China has made significant progress in its pursuit of a functioning corporate governance system. The reform of former SOE’s is continuing with the gradual transfer of non-tradable State shares to tradable shares, although the rights of minority shareholders must continue to be strengthened and protected. Increased stock market liquidity will also allow the market for corporate control to develop as an effective external governance mechanism in the future. The Chinese legal and institutional environments have been strengthened greatly in recent years including the introduction of laws pertaining to information disclosure. Finally the paper notes that due to the important social role of SOE’s and the ruling party’s traditional opposition to private property rights, the State may find it hard to give up full control. In this way, conflicting interests are likely to persist in Chinese listed companies and provide a significant barrier to implementing good governance practices.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2009
Number of pages121