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.

We study the impact of directors with foreign experience on firms in emerging markets. To establish causality, we use a unique dataset from China and exploit that at different times, Chinese provinces introduced policies to attract highly talented emigrants. These policies led to an exogenous increase in the supply of Chinese individuals with foreign experience in the local labor market and ultimately increased the likelihood that firms in these provinces had directors with foreign experience in comparison to firms with a similarly high demand for these skills elsewhere. We document that hiring directors with foreign experience results in higher firm valuation, productivity, and profitability. Furthermore, corporate governance improves and firms are more likely to make international acquisitions, to export, and to raise funds internationally. These results indicate that the transfer of knowledge to emerging markets occurs not only through foreign investment, but also through labor flows and, in particular, return migration.

We investigate how a firm’s political connections may affect its corporate policies. We propose and test the hypothesis that firms’ political connections enhance investors’ endorsement of managerial decisions, which elevates firm investment and encourages equity issuance and less cash payout. Using a sample of non-state owned Chinese firms, we find strong evidence in support of this hypothesis. Specifically, politically connected firms are less likely to pay dividends and pay less if they pay. The dividend announcement returns are significantly lower in connected firms than in otherwise similar but unconnected firms. Investors prefer firm investments to cash payouts by politically connected firms with high growth opportunities, and tend to value these firms’ investment decisions significantly higher. Finally, connected firms are also more able to tap public equity market for external funds. Our evidence is more consistent with political connections being an investor endorsement device rather than the expropriation device as suggested in the prior literature.

This study examines how corporate governance influences short-term and long-term bidder returns from China’s domestic mergers and acquisitions during 2001-2010. We examine a range of corporate governance measures covering ownership structure, board structure, insider ownership and managerial incentives while controlling for bidder and deal characteristics. Our initial results from events analyses show that market responses differ in ways which suggest a difference in how the market’s assessment of share price from the perspectives of short run and long run. Bidders obtain significant positive abnormal returns over the five-day event period but suffer significant wealth losses for two years following the deal completion. Our further analyses on factors driving the price difference show that executive ownership (positive) and state ownership (negative) exert opposite effects on the announcement period returns. The returns further differ by way of payments with positive (negative) effects from stock (cash) financing. Our long-term regression analyses show that the positive impact of executive ownership remains. Independent directors record a negative effect on abnormal returns. Nevertheless, board independence measured by the composite corporate governance index exerts a significant, positive effect on shareholder wealth. Our study highlights the need for the state to accelerate the share structure reform and formulate policies that encourage executive ownership and sound corporate governance.

corporate governance. We hypothesize that (a) Firms in more individualistic cultures should suffer more from agency problems and should use more corporate governance practices; (b) Firms in more individualistic cultures should use more debt since financing policy can also be used to control managerial opportunism, but the cultural effect should be smaller in firms with already higher corporate governance standards. Using the corporate governance scores from ASSET4, we find that individualism can explain a large variation in firm-level corporate governance and the empirical results are consistent with the our hypotheses.

The conflict of interest between controlling and minority shareholders is an important issue in firms with concentrated ownership. We document that expropriation behavior by controlling shareholders through tunneling or self-dealing is far more severe in politically connected firms than in nonpolitically connected firms. This severity results more from the formers’ lower concern with capital market punishment than from the possibility that such firms tend to establish political connections for protection. Consistent with the view that a firm’s financing condition influences its corporate governance, we show that such severe expropriation occurs only in firms whose political connection helps them secure bank loan access.

This paper examines the value of political participation by private entrepreneurs in China. Using a unique sample of all initial public offerings by entrepreneurial firms during 1994-2007 and political participation by the controlling entrepreneurs, we test the hypothesis that firms with entrepreneurs who participate in politics are able to exploit rent-seeking opportunities that normal firms do not have access to. We document that the long-run stock performance after the IPO of firms controlled by entrepreneurs who participate in politics is superior to that of common entrepreneurial firms. Our results also show that political participation has a significant positive effect on change in operating performance and a negative effect on first-day returns. Moreover, we find that economic development and local institutions are important for this value effect. The difference in performance is even larger in regions characterized by more abundant rent-seeking opportunities, indicating that the value effect of political participation likely originates from rent seeking. This finding is consistent with the hypothesis that political participation facilitates entrepreneurs’ rent seeking.

We empirically evaluate 20 prominent contributions to a broad range of areas in the empirical corporate finance literature. We assemble the necessary data and then apply a single, simple econometric method, the connected-groups approach of Abowd, Karmarz, and Margolis (1999), to appraise the extent to which prevailing empirical specifications explain variation of the dependent variable, differ in composition of fit arising from various classes of independent variables, and exhibit resistance to omitted variable bias and other endogeneity problems. In particular, we identify and estimate the role of observed and unobserved firm- and manager-specific characteristics in determining primary features of corporate governance, financial policy, payout policy, investment policy, and performance. Observed firm characteristics do best in explaining market leverage and CEO pay level and worst for takeover defenses and outcomes. Observed manager characteristics have relatively high power to explain CEO contract design and low power for firm focus and investment policy. Estimated specifications without firm and manager fixed effects do poorly in explaining variation in CEO duality, corporate control variables, and capital expenditures, and best in explaining executive pay level, board size, market leverage, corporate cash holdings, and firm risk. Including manager and firm fixed effects, along with firm and manager observables, delivers the best fit for dividend payout, the propensity to adopt antitakeover defenses, firm risk, board size, and firm focus. In terms of source, unobserved manager attributes deliver a high proportion of explained variation in the dependent variable for executive wealth-performance sensitivity, board independence, board size, and sensitivity of expected executive compensation to firm risk. In contrast, unobserved firm attributes provide a high proportion of variation explained for dividend payout, antitakeover defenses, book and market leverage, and corporate cash holdings. In part, these results suggest where empiricists could look for better proxies for what current theory identifies as important and where theorists could focus in building new models that encompass economic forces not contained in existing models. Finally, we assess the relevance of omitted variables and endogeneity for conventional empirical designs in the various subfields. Including manager and firm fixed effects significantly alters inference on primary explanatory variables in 17 of the 20 representative subfield specifications.

This study investigates the influence of equity characters characteristic on firm performance using panel data for 373 listed companies for the period from 2001 to 2009.We find that there is non-linear correlation between ownership characters and firm performance.(ii)the high state ownership has significant positive influence on performance but we have not found evidence that the small and medium state ownership have any influence on performance.(iii) the legal person ownership has negative influence on performance but the individual ownership is positive relation with performance.

This study develops a transparency index to measure the quality of disclosure of corporate governance practices of major Hong Kong listed companies, based on the OECD principles of corporate governance. Using time series data over a three-year period, we show that company valuation is positively associated with the quality of company disclosure. The index is further split into two sub-indexes, voluntary and non-voluntary disclosure, based on the disclosure requirements amended by the Hong Kong stock exchange in 2004. The findings support the hypothesis that company valuation is positively associated with a company’s level of voluntary disclosure. Hong Kong listed companies with larger size, better profitability, a remuneration committee, more outside directors, and that are non-China related tend to have a higher level of voluntary disclosure.