When examining corporate governance in China, it is crucial to recognize the unique socioeconomicstructures and legal systems at play. The mechanisms of corporate governance theorized in the West might not necessarily have the same impact in China. In particular, given China’s distinct feature of the domestic economy and its socio-political structure, the results of introducing a hostile takeover system might not align with common anticipations that scholars and policymakers in China and elsewhere broadly share. In greater detail, this paper highlights the significant market imperfections in the Chinese economy, stemming from information asymmetry, imperfect product markets, and capital-market inefficiency. These market imperfections suggest that an active hostile takeover regime might not function effectively in China, as its disciplinary mechanism operates successfully in other advanced countries. Additionally, this paper underscores that due to China’s distinctive features—including its state-owned corporate landscape, the dominance of controlling shareholders in private corporations’ ownership structures, and its unique brand of socialism—the introduction of an active takeover regime could produce unintended consequences in the Chinese economy. Overall, challenging the prevailing perspective, I posit that within the Chinese hostile takeover framework, corporate governance is not as influential as one might assume.

This paper examines the effectiveness of preemptive rights in protecting minority shareholders, drawing on new issuances by Chinese listed firms spanning from 2006 to 2022. The evidence reveals that, on average, only 62% of shareholders exercise their preemptive rights despite an 18% issuance discount, resulting in wealth losses of 6% of issuance amount for non-participating shareholders. More importantly, minority shareholders suffer greater wealth losses because they lack sophistication and face extra constraints in exercising their rights compared to controlling shareholders. These findings call for additional policy safeguards, such as rights transferability and controlling shareholders’ pre-commitment, to enhance minority shareholder protection.

This paper examines the relationship between controlling shareholder equity pledges and their pricing using data on new debt financing instruments issued by Chinese A-share listed companies from 2010-2021. The findings suggest that controlling shareholder equity pledges lead to higher credit spreads on new debt financing instruments issued. Further findings suggest that this significant relationship only exists in groups where listed companies are on the eastern seaboard, where there is a higher risk of the share price collapse, and where management is more competent. It was also found that this relationship was not heterogeneous in the quality of the firm's information environment group and was only significant in the low hollowing out-group, thus ruling the hollowing out hypothesis and the information hypothesis and validating the uniqueness of the control transfer risk hypothesis in this paper.

We examine the information content of changes in shareholdings after private issuance of public equity (PIPE) by mutual funds that participate in PIPEs in China. The results show that the changes in shareholdings is positively related to alpha and cumulative abnormal return (CAR) for PIPE issuers with high information asymmetry, suggesting that the participating mutual funds have superior information. These results are robust after controlling for investment skill, geographic location, and alumni relation. The positive relation between shareholding change and information content is driven by PIPE issuers with weaker corporate governance. In addition, the positive relation is stronger when the placement discount is lower. These results are consistent with a hypothesis that controlling shareholders/management in Chinese PIPE firms may collude with mutual funds to do tunneling.

We examine the effects of controlling shareholder stock pledge on corporate acquisition decisions and associated performance. Consistent with our aggravated expropriation hypothesis, we find that pledging firms in China initiate more takeovers, but these acquisitions conducted by pledging firms experience lower announcement returns. We adopt the difference in differences and the instrumental variable approaches to establish causality. Channel tests further reveal that pledging acquirers overpay for the deals and are more likely to be involved in related party transactions. Cross-sectionally, we find that the relations between the share pledge and corporate acquisitiveness and returns are more pronounced for non-SOEs and firms with high-level excess cash. Lastly, we document that pledging acquirers underperform in the long-run in terms of lower ROAs and a greater likelihood of goodwill impairment. Overall, our findings indicate that controlling shareholders increasingly expropriate minority shareholders through self-serving corporate takeovers after the stock pledge.

We examine the effects of controlling shareholder stock pledge on corporate acquisition decisions and associated performance. Consistent with our aggravated expropriation hypothesis, we find that pledging firms in China initiate more takeovers, but these acquisitions conducted by pledging firms experience lower announcement returns. We adopt the difference in differences and the instrumental variable approaches to establish causality. Channel tests further reveal that pledging acquirers overpay for the deals and are more likely to be involved in related party transactions. Cross-sectionally, we find that the relations between the share pledge and corporate acquisitiveness and returns are more pronounced for non-SOEs and firms with high-level excess cash. Lastly, we document that pledging acquirers underperform in the long-run in terms of lower ROAs and a greater likelihood of goodwill impairment. Overall, our findings indicate that controlling shareholders increasingly expropriate minority shareholders through self-serving corporate takeovers after the stock pledge.

We examine the influence of implicit government guarantees on the information content of credit ratings in China, guided by a theoretical credit rating game model in the presence of government guarantees. Using issuers’ controlling shareholder identity as the defining metric of implicit government guarantees, we document a less sensitive relationship between credit ratings and primary market offer yields for SOE bonds (i.e., bonds issued by firms controlled by government or government related agencies) than that for non SOE bonds. Moreover, ratings of non SOE bonds have a stronger predictive power on both future downgrades and a market based measure of issuer expected default probability than those of SOE bonds. These findings are robust to considering the u nobserved influence of the controlling shareholder identity on security pricing and bond default risk. Taken together, our empirical findings are consistent with the model’s prediction that government guarantees can dampen the incentives for credit rating agencies to acquire costly information, thus lowering the equilibrium informativeness of ratings for SOE bonds.

The deviation of control right and cash flow right is a common problem of corporate governance in East Asian companies.With Taiwan's listed companies as samples, this paper discusses whether the degree of deviation of control right and cash flow right will affect the company’s earnings distribution policy. The results reveal that, regardless of using stock right or the number of directors to measure the control right, companies of higher degree of deviation of control right and cash flow right have higher proportions of employee bonuses against the shareholder dividends, In this case, the company is more biased in the care of the employees at the expense of the minority shareholders. The company is especially likely to exploit the minority shareholders by controlling the board of directors and paying cash dividends to employees. As investors believe that the controlling shareholders of companies with high degree deviation of control right and cash flow right, and high proportion of employee bonuses are intended to exploit the minority shareholders, such companies have significantly lower declared earnings distribution remuneration compared with companies with low degree of deviation and low employee bonuses.

This study investigates the impact of ultimate government ownership or control on the cost of debt of Chinese listed corporations. We first examine the relative level of cost of debt of corporations under government control compared to corporations under individual or family control. We then explore circumstances under which government control is likely to reduce a corporation’s cost of financing. Our results suggest that the benefits of government control are conditional on firm-specific financial circumstances and internal- and external-corporate governance environment. We find that, on average, government controlled corporations have lower cost of debt but the effect is not homogeneous. Government controlled corporations have lower cost of debt when they are highly financially constrained and have higher risk of being expropriated by controlling shareholders and in provinces where the local government is less effective, but not otherwise.

In the developing Chinese capital market which dominated by individual investors and potentially suffer from more behavioral biases, we simultaneously examine the trading and monitoring role of mutual funds (as the largest institutional investor in China) in corporate acquisition activities where there are potentials for a wide disparity of interest between institutional investors and controlling shareholders. We find the level of holding by all mutual funds is not a superiors indicator of deal quality, there are some evidence that the collective holdings by the largest fund management companies positively relate to the deal quality and they potentially play the monitoring role in M&A event. Our paper contributes to the existing literature that “transient investors” can also gain from monitoring in the market where institutional investors has less dominant position.