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This chapter examines China’s corporate governance and accounting environment that shapes the adoption of internationally acceptable principles and standards. Specifically, it examines international influences, including supranational organizations; foreign investors and international accounting firms; domestic institutional influences, including the political system, economic system, legal system, and cultural system; and accounting infrastructure. China’s convergence is driven by desired efficiency of the corporate sector and legitimacy of participating in the global market. Influenced heavily by international forces in the context of globalization, corporate governance and accounting practices are increasingly becoming in line with internationally acceptable standards and codes. While convergence assists China in obtaining legitimacy, improving efficiency is likely to be adversely affected given that corporate governance and accounting in China operate in an environment that differs considerably from those of Anglo-American countries. An examination of the corporate governance and accounting environment in China suggests heavy government involvement within underdeveloped institutions. While the Chinese government has made impressive progress in developing the corporate governance and accounting environment for the market economy, China’s unique institutional setting is likely to affect how the imported concepts are interpreted and implemented.

China has achieved continuous economic growth and become more integrated with the global economy since the start of the current financial crisis in late 2008. As the second largest economy in the world, China's political policies, economic and social development have influence on global economy. Attention has been paid worldwide to the current Chinese legal system, political policies and the development of economic reform since China entered the World Trade Organisation in November 2001. The corporate governance reform is the centre of the enterprise reform. In September 1999, The Fourth Plenum of the Chinese Communist Party's 15th central Committee identified that corporate governance is the core of the modern enterprise system. In recent years China has made significant progress in developing the foundations of a modern corporate system. There are more than 1,200 companies which have successfully diversified their ownership through public listing and 80% of small and medium size companies have been transformed into non-state-owned enterprises. More and more state-owned enterprises are on the way to transforming into corporations. China has formed a legal framework for corporate governance.

The effectiveness of corporate governance is a major factor in forecasting firm performance. We examine the relationships among cross-listing, corporate governance and firm performance for a sample of Chinese cross-listed companies. We show that cross-listed firms display higher overall quality of corporate governance compared to non-cross-listed firms. Consequently better corporate governance results in higher operating performance. Our results support the bonding hypothesis of cross-listing. Furthermore, we also illustrate that the cross-listing status encapsulates the higher quality of corporate governance that leads to higher operating performance. When forecasting performance of cross-listing companies, it is therefore important to recognize the substitute effect between cross-listing and corporate governance.

This paper demonstrates that the agency problems within China's stated-owned enterprises (SOE) constitute the characteristics of corporate governance. It argues that the current corporatisation of SOEs in China has not improved the performance of the corporatised SOEs because it has failed to address the critical issue of corporate governance. For China, a neo-corporatist approach of corporate governance with a two-tier board structure may have advantages over a neo-liberal approach with a single board. However, the key issue is not to adopt a fixed set of governance models to copy, but to develop its institutional environment that lead to effective corporate governance.

Stewardship theory is an emergent approach for explaining leadership behavior, challenging the assumptions of agency theory and its dominance in corporate governance literature. This study revisits the agency and stewardship theories by seeking to answer whether chief executive officers (CEOs) in China are committed stewards or opportunistic agents.

Based on 5,165 observations of 1,036 listed companies in China over the period 2005–2010, the results suggest that the corporate governance mechanisms developed from the agency theory in the West are not necessarily applicable in the Chinese context.

This study supports the stewardship theory in its findings that empowering CEOs through the practice of CEO duality and longer CEO tenure have a positive effect on firm value in China. Additionally, the positive relationships between CEO duality, CEO tenure and firm value are strengthened by the number of executive directors on the board, and weakened by the number of independent directors on the board.

One size does not fit all. Leadership behaviors in China do not follow the agency assumptions inherent in Western practices, rather they favor the conditions of positive leadership expressed by the stewardship theory. Assuming that the motivations of managers in emerging markets such as China are similar to those in the West may lead to a poor fit between governance policies and the institutional context.

As one of the few studies to connect the theoretical debate between the agency and stewardship theories, this study presents new evidence to support the stewardship theory, thereby strengthening its theoretical importance and relevance in corporate governance literature.

Recent spectacular collapses globally have sparked renewed public interest in corporate governance and the pursuit of a new global model. The prevailing dominance of an American model has overshadowed constructive attempts to derive a model that is more appropriate for ‘non-western’ and developing countries. In this paper, I examine the discourse of corporate governance in China. I argue that rather than being a mere captive of the American model, it could have crafted and developed an alternate and more appropriate model that takes into account the economic and social needs of China instead of a corporate governance model developed for other countries.

Purpose – The purpose of this study is to empirically evaluate the effectiveness of China's 2005 shareholding reform and investigate the relationship of the changes of state-owned shareholdings and the largest shareholdings with corporate performance.

Methodology/approach – This study uses a sample of 470 listed firms that were subject to China's 2005 shareholding reform with data from 2004 and 2006. First, we examine whether the reform has reduced state-owned shareholdings measured by ownership concentration and the largest shareholdings through comparing shareholder structures of the reformed listed companies prior to and after the reform. Second, regression analysis was used to explore the relationship between the change of ownership concentration and largest shareholdings and corporate performance of Chinese listed firms.

Findings – This study reveals the effectiveness of the shareholding reform as both ownership concentration and largest shareholdings decrease. This study presents evidence suggesting a positive impact of China's 2005 shareholding reform on corporate performance and endorsing the notion that state-owned shareholdings are detrimental to corporate performance.

Research limitations – ROE is used as a measure of corporate performance, which is influenced by the rules of accounting standards and corporate behavior.

Originality/value – This study provides empirical evidence on the effectiveness of China's shareholding reform and shows a positive relation between the reduction of ownership concentration and corporate performance. This is the first study to examine this relation using the cases of Chinese listed companies. The findings have implications to regulatory bodies, public listed firms and investors in China in terms of corporate governance and shareholding configuration.

Corporate governance plays a decisive role in the financial performance of a firm. While the majority of the firms in China and India are owned and managed by its promoters, the present study attempts to examine the impact of ownership structure and board characteristics on firm value for these two economies. The study employs panel data methodology with industry and time fixed effects on a sample of 1,042 firms listed in National Stock Exchange of India and 450 firms listed in Shanghai Stock Exchange of China. The study finds promoter ownerships to positively impact a firm’s value creation process, while institutional investors exert a negative influence. Although CEO duality enhances firm value in China, the results show otherwise for Indian firms. Additionally, while board independence is positively correlated to firm value in India, it has a negative effect on firms in China. Finally, the study finds that larger board size contributes favorably toward better decision making.

The goal of this paper is to investigate the relationship between government control and firm value in China.

Government might extract social or political benefits from a state-controlled firm, thus decreases firm value. However, government’s monitoring on firm management reduces managers’ agency problem, which increases firm value. We first build a game-theoretic model to prove the existence of optimal government control given these two roles of government, and we then employ the OLS regression method to test the theory predictions using the length of intermediate ownership chains connecting the listed state-owned enterprises to their ultimate controllers as the measure of government control.

We find that firm values first increase then decrease as government control weakens. Moreover, we find that government usually retains a stronger control over state-owned enterprises than the optimal level. In addition, we show that government control can be further weakened in firms with good corporate governance mechanisms, which serve as a substitution of government monitoring.

Our results demonstrate that government control in China is still a necessary but costly mechanism to mitigate agency costs, especially when corporate governance system is underdeveloped.

We identify the substitution effect between government control and corporate governance using a unique measure of government control.