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1 – 10 of 190Aysun Ficici, Bo Fan, C. Bülent Aybar and Lingling Wang
This paper attempts to explore the interrelationships between the split-share structure reform and privatization processes in light of the interplay between the listing…
Abstract
Purpose
This paper attempts to explore the interrelationships between the split-share structure reform and privatization processes in light of the interplay between the listing announcements of the non-traditional shares of the Chinese firms within the steel industry and market reaction to these listed shares, as well as to analyze the value gained by the firms due to the privatization processes.
Methodology/approach
The paper examines market reaction to the listing announcements of non-traditional shares as traditional shares by employing event-study methodology. To determine the success of privatization process and value creation to the firm, the paper utilizes multivariate analysis.
Findings
The exogenous factors emphasized in a topographical order, explicitly profitability, efficiency, and leverage, are related to the privatization processes and split-share structure reform that impact the market. The study supports that market reacts positively to the listing announcements of non-traditional shares. Being listed improves value to the firm.
Research limitations/implications
The limitation of this study is the lack of data on country, industry, and firm factors; and this study merely relates to one specific industry and one country.
Originality/value
The paper fills a gap in the literature by articulating the impact of privatization and split-share structure reform on both market reaction and firm value. It focuses on the impact of a dynamic process rather than the impact of a static constituent on market reaction and firm value, as the previous studies have been concentrating on. The research shows that there is an accelerated privatization process of state-owned firms in Chinese steel industry and their integration in capital markets.
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Sun Guangguo, Sun Ruiqi and Li Hezun
The existence of controlling shareholders creates a remarkable difference between the corporate governance structures of Chinese firms and those of western firms. Despite the…
Abstract
Purpose
The existence of controlling shareholders creates a remarkable difference between the corporate governance structures of Chinese firms and those of western firms. Despite the increasing importance of controlling shareholders, it remains disputable whether they are playing the “tunneling” roles or the “governance” roles. Therefore, more research is needed on what roles controlling shareholders are playing and how they play their roles. Previous empirical studies document a common phenomenon that directors play dual roles both on the board and in the top management team. Because of information asymmetry, the board of directors may not be able to perform its supervisory and strategic decision-making functions. Therefore, this paper aims to investigate whether controlling shareholders participate in firm management by appointing the executive directors and examine the economic consequences of controlling shareholder involvement.
Design/methodology/approach
In the empirical tests, the authors use the split share structure reform in China as a natural experiment. Using the data from Chinese listed firms between 2001 and 2015 and difference-in-differences analysis, the authors examine the impact of the split share structure reform on the executive directors of controlling shareholders and the governance effect of controlling shareholders’ appointing executive directors to the management.
Findings
The authors find that controlling shareholders get involved in firm management by appointing executive directors to strengthen the supervision and incentives of managers. The authors also find that firms exhibit a lower level of earnings management and enhance and higher pay-performance sensitivity after controlling shareholders appoint executive directors to the top management team.
Originality/value
As the natural experiment of the split share structure reform enables us to mitigate endogeneity, the authors investigate the channels through, which controlling shareholders get involved in firm management from the unique perspective of executive director appointment. The study expands the literature on corporate governance and board functions. The findings provide new insights to the effect of controlling shareholder governance and casts light on a new way for controlling shareholders of Chinese firms to participate in firm management – by appointing executive directors.
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The purpose of this paper is to provide an updated and critical assessment of the share reforms relevant to Chinese A‐share issuers listed in the two mainland markets of Shanghai…
Abstract
Purpose
The purpose of this paper is to provide an updated and critical assessment of the share reforms relevant to Chinese A‐share issuers listed in the two mainland markets of Shanghai and Shenzhen. The reform programme first began in 2005 and has now spread widely across issuers in the two markets. It is therefore timely to assess how effective the reforms have been as well as gauging the ongoing effects of the transformation (of non‐tradable scrip into tradable form) on A‐share prices.
Design/methodology/approach
The “Split Share Structure” reform programme represents a major policy initiative in China and potentially opens‐the‐door to large‐scale state‐share disposals. The evidence to date however suggests that the Chinese authorities are primarily concerned with the reconfiguration of the array of share types that presently exist into a more comprehendible, streamlined form. The various checks and balances imposed on controlling shareholders engaged in the transformation of their shares from non‐tradable to tradable form suggest that eventual re‐designation of the holdings into an unfettered tradable type will not necessarily translate to the state's acquiescence in the disposal of such shares. On the contrary, state holdings in the most strategic of assets are likely to be retained more or less intact. Insights are developed by focusing on examples involving major A‐share issuers. In particular, a case study of the Sinopec reform proposal of August/September 2006 is set out to help illuminate the principal features of the reform package. Critical examination of the empirical literature relating to the A‐share price effects of the share reform programme also features.
Findings
There is little evidence to date of significant stock disposals amongst the largest and most strategic of China's issuers. However, for a number of A‐listed issuers, parts of the lock‐up moratoria have already expired or are set to do so in the very near future. Given the precipitous fall in A‐share prices (in Shanghai and Shenzhen) since late 2007, largely wrought by the enveloping global credit‐crunch, the Chinese authorities have an even more compelling case than hitherto to assiduously dampen fears of large‐scale state‐share disposals. Notwithstanding this, at least a small part of the drop in A‐share values during 2008 derives from the building risk‐premium on this issue.
Research limitations/implications
As the trading moratoria on re‐designated shares still applies in most cases, at least in respect of the majority of domestic stock holdings, a clearer picture will not emerge until 2009‐2011 when all such moratoria would have lapsed.
Originality/value
The discussions in this paper help to bring into focus a highly topical issue within the context of the Chinese equity market.
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Hao Liang, Luc Renneboog and Sunny Li Sun
We take a state-stewardship view on corporate governance and executive compensation in economies with strong political involvement, where state-appointed managers act as…
Abstract
Purpose
We take a state-stewardship view on corporate governance and executive compensation in economies with strong political involvement, where state-appointed managers act as responsible “stewards” rather than “agents” of the state.
Methodology/approach
We test this view on China and find that Chinese managers are remunerated not for maximizing equity value but for increasing the value of state-owned assets.
Findings
Managerial compensation depends on political connections and prestige, and on the firms’ contribution to political goals. These effects were attenuated since the market-oriented governance reform.
Research limitations/implications
Economic reform without reforming the human resources policies at the executive level enables the autocratic state to exert political power on corporate decision making, so as to ensure that firms’ business activities fulfill the state’s political objectives.
Practical implications
As a powerful social elite, the state-steward managers in China have the same interests as the state (the government), namely extracting rents that should adhere to the nation (which stands for the society at large or the collective private citizens).
Social implications
As China has been a communist country with a single ruling party for decades, the ideas of socialism still have a strong impact on how companies are run. The legitimacy of the elite’s privileged rights over private sectors is central to our question.
Originality/value
Chinese executive compensation stimulates not only the maximization of shareholder value but also the preservation of the state’s interests.
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Xu_Dong Ji, Kamran Ahmed and Wei Lu
The purpose of this paper is to investigate the effect of corporate governance and ownership structures on earnings quality in China both prior and subsequent to two important…
Abstract
Purpose
The purpose of this paper is to investigate the effect of corporate governance and ownership structures on earnings quality in China both prior and subsequent to two important corporate reforms: the code of corporate governance (CCG) in 2002 and the split share structure reform (SSR) in 2005.
Design/methodology/approach
This study utilises informativeness of earnings (earnings response coefficient), conditional accounting conservatism and managerial discretionary accruals to assess earnings quality using 12,267 firm-year observations over 11 years from 2000 to 2010. Further, two dummy variables for measuring the changes of CCG and SSR are employed to estimate the effects of CCG and SSR reforms on earnings quality via OLS regression.
Findings
This study finds that the promulgation of the CCG in 2002 has had a positive impact, but the SSR reform in 2005 has had little effect on listed firms’ earnings quality in China. These results hold good after controlling for a number of ownership, governance and other variables and estimating models with multiple measures of earnings’ quality.
Research limitations/implications
Future research could focus on how western style corporate governance mechanisms have been constrained by the old management systems and governmental dominated ownership structures in Chinese listed firms. The conclusion is that simply coping Western corporate governance model is not suitable for every country.
Practical implications
The results will assist Chinese regulators in improving reporting quality, ownership structure and governance mechanisms in China. The results will help international investors better understand quality of financial information in China.
Originality/value
This is the first to our knowledge that addresses the effects of major governance and ownership reforms together on accounting earnings quality and, thus, makes a significant contribution on understanding the effect of regulatory reforms on improving earnings quality. In doing so, it also indirectly assesses the effectiveness of western-style corporate governance mechanisms introduced in China.
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Xiaoqing Feng, Wen Wen, Yun Ke and Ying He
This study aims to examine whether a firm's demand for high-quality auditors is influenced by multiple large shareholders (MLS). As one type of ownership structure, MLS have…
Abstract
Purpose
This study aims to examine whether a firm's demand for high-quality auditors is influenced by multiple large shareholders (MLS). As one type of ownership structure, MLS have gained popularity in China recently and have different types of large shareholders, including large institutional shareholder, large foreign shareholder and large state shareholder. The authors also examine whether different types of MLS have heterogeneous impacts on appointing high-quality auditors.
Design/methodology/approach
With a sample of 27,131 firm-year observations from Chinese public companies from 2003 to 2018, the authors use multivariate regressions to examine the effect of MLS on auditor choice. Heckman two-stage analysis, a firm fixed effects model, propensity score matching and difference-in-differences test are used as robustness checks.
Findings
This paper finds that the presence and power of MLS increase the likelihood of appointing high-quality auditors. With regard to the types of MLS, large institutional shareholders and foreign shareholders have significant positive effects on appointing high-quality auditors, while the presence of state-owned large shareholders has no effect on auditor choice. Further analyses reveal that the positive effect of MLS on high-quality auditor choice is more pronounced in firms with severe agency problems and information asymmetry. Taken together, these results suggest that MLS play a monitoring role by demanding high-quality auditors.
Originality/value
This paper contributes to the literature on the determinants of auditor choice. While prior studies primarily focus on the impact of concentrated ownership structure, corporate governance and the pressure from stakeholders on auditor choice, this paper complements the literature by providing evidence from the heterogeneous effects of different types MLS. This paper also extends the literature on the consequences of MLS from the perspective of auditor choice.
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Song Zhu and Donglin Xia
China's securities market is growing gradually as well as the investors, analysts, intermediates and regulation authorities. Accounting earnings is a key determinant among the…
Abstract
Purpose
China's securities market is growing gradually as well as the investors, analysts, intermediates and regulation authorities. Accounting earnings is a key determinant among the factors influencing stock prices, which even overreacts to earnings. Split‐stock reform (all‐circulation reform) in China provides a chance for investors to revaluate the stock prices. The purpose of this paper is to investigate the market reaction during the reform from the perspective of accounting conservatism.
Design/methodology/approach
Using the data of companies completing the split‐stock reform, this paper empirically investigates how the accounting conservatism influences the market reaction around re‐open day after the reform.
Findings
Accounting information plays its role on stock pricing through the reform of split‐stock reform in the China securities market, evident in the significantly positive relation between the proxies of accounting conservatism and cumulative abnormal returns for one day, three days, ten days and 30 days around re‐open day after the reform. Also, the profitability of listed firms in the past will further improve the positive relation between conservatism and market reaction.
Originality/value
There is ample theoretical work on stock pricing of accounting conservatism but empirical work is scarce, so this paper provides more evidence for the role of stock pricing of accounting conservatism, especially in emerging markets. Second, current research on accounting conservatism in China is focusing on whether conservatism exists and how the conservatism varies; this paper further extends the research field of conservatism from the pricing perspective. Third, researches based on the determinants of stock compensation and market reaction on stock reform lack theoretical analysis, while this paper provides a theory basis for the market reaction during the stock reform.
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This paper aims to investigate the interconnections between corporate ownership, tax system and controlling shareholder tunneling through intercorporate loans in an emerging…
Abstract
Purpose
This paper aims to investigate the interconnections between corporate ownership, tax system and controlling shareholder tunneling through intercorporate loans in an emerging market setting.
Design/methodology/approach
China’s Enterprises Income Tax reform in 2008 abolished its previous multiple-tiers tax system under which foreign direct investment (FDI) firms enjoyed preferential tax rates than domestic firms by introducing a new unified-rate tax system. Using difference-in-differences tests, the author analyzes changes of controlling shareholders tunneling through intercorporate loans among Chinese listed companies around this reform.
Findings
The author documents significant reductions of intercorporate loans after the reform. More importantly, the author reveals that foreign-invested firms experienced larger reductions of intercorporate loans than domestic firms. The author also shows that state association matters for domestic firms’ response to the reform. In addition, the author documents positive stock market reaction to the tax reform announcement for firms that exhibited higher level of tunneling prior to the reform, indicating market expectation of reduced principal-principal conflict post-reform.
Research limitations/implications
The findings suggest effective corporate governance system is warranted to constrain intercorporate fund transfers in emerging markets where tax incentives are used for attracting inward foreign direct investments. Institutional reforms in emerging markets aimed at removing market frictions can alleviate the problem of controlling shareholder expropriations of minority interests or tunneling.
Originality/value
This is a pioneering study that reveals the role of tax as a public governance mechanism in weak minority investor protection environment.
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Tanveer Ahsan, Sultan Sikandar Mirza, Bakr Al-Gamrh and Muhammad Zubair Tauni
The purpose of this study is to explain the adjustment rate toward the target capital structure of Chinese nonfinancial listed firms and to investigate the impacts of the…
Abstract
Purpose
The purpose of this study is to explain the adjustment rate toward the target capital structure of Chinese nonfinancial listed firms and to investigate the impacts of the split-share reforms (2005–2006) on the capital structure adjustment rate.
Design/methodology/approach
The authors control for the unobserved heterogeneity and the fractional nature of the adjustment rate by applying an unbiased dynamic panel fractional estimator on the unbalanced panel data of 27,545 firm-year observations of Chinese nonfinancial firms listed during 1998–2015.
Findings
The authors find that Chinese firms adjust at an annual rate of 19–27% to reach their capital structure targets. The authors also find a positive impact of the split-share reforms on the adjustment rates of Chinese nonfinancial firms toward their target capital structure. Split-share reforms also helped Chinese firms to increase the use of equity financing in their capital structure.
Practical implications
The authors argue that the government should strengthen capital markets to enable easy access to more financing options so that Chinese firms can acquire cheaper external financing.
Originality/value
To the best of authors' knowledge, this is the first study that applies an unbiased dynamic panel fractional estimator on an extended data set of 27,545 firm-year observations of Chinese nonfinancial firms listed during 1998–2015.
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Walter Amedzro St-Hilaire and Patrick Boisselier
The purpose of this paper is to analyze the variables improving the business model and provide a theoretical basis for the scientific implementation of the current financial…
Abstract
Purpose
The purpose of this paper is to analyze the variables improving the business model and provide a theoretical basis for the scientific implementation of the current financial strategy.
Design/methodology/approach
According to the principle of testability, availability and correlation, the annual data are uses to measure the interaction level of business system in order to accurately reflect the evolution of the financial decision, and explore the main factors restricting the multiple strategies coordination.
Findings
The promotion of business growth relies mainly on the coordinated development of innovation, industries, consumption, investment and export. Further transformation and upgrading is one of the paths to achieve the coordinated development of financial strategy multiple objectives. The irrational business structure is the main obstacle to that coordination.
Research limitations/implications
In future research, it may be possible to identify “a financial broader strategy impact discussion for impact on Basel, IMF/World Bank and Capital Foundations or other regulatory strategies to avert future economic crises.” If so, it should be possible for financial institutions to use the results of research examining antecedents to better manage their experiences so as to foster the development of the desired strategies.
Practical implications
The initiatives taken to try to clarify the variables improving the business model and provide a theoretical basis for the scientific implementation of the current financial strategy show how complex it seems to identify practices and those to be developed as a priority. Institutions tend to adopt an increasingly wide range of commonly accepted strategical practices, such as coordinated-determining practices, without really knowing the effect of their interaction on efficient Management processes. In this regard, this paper provides practical advice that may assist successful adaptation for institutions leaders. The study provides new insights into the understanding of the coordinated strategy mechanisms that can influence the optimization of the interaction level of decision control and promote the effectiveness of managerial practices in determining the business model. Always in terms of practical implications, the findings from this paper may be particularly pertinent for managers in public administration and institutional decision makers in many countries across the world where traditionally, the administrators may be more business-intelligence-averse than their counterparts in the private sectors. The specificities of such business model as regarding their constraints concerning the coordinated strategy may reflect at both structural as well as individual levels, considering the predominantly rigid nature of the planning in many configuration.
Originality/value
The conclusion provides a theoretical basis for the scientific implementation of the current monetary strategy.
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