单击此处编辑母版标题样式,单击此处编辑母版文本样式,第二级,第三级,第四级,第五级,*,*,Law,Corporate Governance,and Corporate Scandal in China,Yi Zhang,Peking University,International Conference on Corporate Governance,Shanghai,March 2005,1,I.Introduction,It has been over ten years since stock markets established in China.China stocks market has been playing a role.,there exist so many listed firms committed fraud and scandal,Since 1992,about 200 listed firms among 1200 have been subject to security enforcement action by China Securities Regulation Commission(CSRC),Shenzhen Stock Exchange(SZSE)and Shanghai Stock Exchange(SSE).,The ratio of firms with scandal is far above the level of other countries,2,Motivation,What contributes to firms scandal?,Does corporate governance matter in China?,Is there a sound corporate governance mechanism could prevent scandal?,Does legal and economic development matter?,-Is there a difference between firms in regions with various legal effectiveness?,-economic development?,3,II.Issues and Hypothesis:,-Corporate governance,-legal,-economic,-finance,4,1.Corporate Governance,1.1.ownership,One of the most essential feature of the ownership of Chinese listed firms is the dominance of the largest shareholder,There has no effective mechanism to monitor and restrict the large shareholders,The large shareholder can expropriate the minority shareholders for private benefit,5,1.Corporate Governance,1.1.ownership,Jensen(1976),Stulz(1988),H1A:,As the ownership of the largest shareholder increases from zero,a firm is more likely to be associated with scandal,6,Entrenchment of large shareholders,Expropriation by large shareholder,La Porta,Lopez-De-Silanes,Shleifer(1999),La Porta,Lopez-De-Silanes,Shleifer(2002),Claessens,Djankov,Fan,and Lang(2002),Fan and Wong(2002),H1B:,As the ownership of the largest shareholder increases over certain level,a firm is more likely to be associated with scandal,7,1.2 Firm Controller,There is fundamental difference between state and non-state shareholders,There is huge difference among state shareholders in internal monitoring,etc.,-central government(bu/wei,中央部委）和,-non-central government(非部委）,Li and Zhang（2005）,Li and Zhang（2004）,Lin and Zhang（2004）,8,1.2 Firm Controller,-central government(bu/wei,中央部委）和,-non-central government(非部委）,central government controlled,local government controlled,local State Enterprises(SOE)controlled,Non-state legal person controlled,Natural person,others,9,1.2 Firm Controller,Central government controlled firms are associated with clearer ownership,(a little)more transparency,more monitoring,more social responsibility,(maybe)better protection of minority shareholders,Non-central SOE and non-state legal person controlled firms are associated with less transparency and lack of monitoring,up to less social responsibility,lack of protection of minority shareholders,H2:Firms controlled by central(/local)government are less likely to be associated with scandal,10,1.Corporate Governance,1.3 Board,Fama and Jensen(1983)theorize that the board of directors is the highest internal control mechanism responsible for monitoring the actions of top management.,-the composition of individuals who serve on the board of directors is an important factor in creating a board that is an effective monitor of management actions,Famas(1980)and Fama and Jensens(1983)theory,would predict that higher percentages of independent directors increase the boards effectiveness as a monitor of management.,11,Jensen(1993)argues that boards of director are ineffective monitors when the board is too large,when the boards equity ownership is small,and when the CEO is also the Chairman of the Board.,composition of the board of directors determines its effectiveness,DeFond and Jiambalvo(1991),Beasley(1996),Dechow,Sloan and Sweeney(1996),etc.,Board composition and disclosure,Chen and Jaggi（2000）,12,The board size,H3A:,Firm with a larger board size is more likely to be associated with scandal,13,The board-management relationship,The CEO/Chairman,H3B:,Firm with a separate CEO and Chairman is less likely to be associated with scandal,14,Independent directors,Independent directors,compared with inside directors,are less likely to collude with management,H3C:,Firms with lower proportion(seats)of independent director on the board of directors are more likely to be associated with scandal,15,Director,holdings,H3D:,Firms with a higher ratio(number)of directors hold firm stock are less likely to be associated with scandal,Chairman,Holding,H3E:,Firms with higher Chairman stock holding are less likely to be associated with scandal,16,Director Compensation,H3F:,Firm with higher ratio(number)of director paid are less likely to be associated with scandal,17,1.4 Supervisory Committee(,Board of Supervisors-,监事会),Supervisory Committee size,H4A:,Firms with a larger Supervisory Committee size is more(less?)likely to be associated with scandal,18,1.4 Supervisory Committee(,Board of Supervisors-,监事会),Supervisory Committee,member holdi