This study examines the effect of corporate asset growth on stock returns using data on nine equity markets in Asia. For the period from 1981 to 2007, we find a pervasive negative relation between asset growth and subsequent stock returns. We further examine the determinants of this asset growth effect across markets. The negative relation between asset growth and stock returns is weaker in markets where firms’ assets growth rates are more homogeneous, and in markets where firms rely more on internal financing and bank financing for growth. On the other hand, corporate governance, investor protection, and legal origin do not influence the magnitude of the asset growth effect in the Asian markets.

The relationship between capital structure and product market competition is recently a new research field and hot topic in the study of capital structure. Focuses on Chinese state-controlled and private listed companies, this paper concludes that private listed companies have greater competition advantages than the state-controlled listed companies through empirical study of the relationship between capital structure and product market competition. The policy implication of this conclusion is that favorable capital structure helps to improve the corporate governance structure and strengthen the product market competition advantage of the listed companies. To improve the quality of Chinese listed companies, Chinese government is strongly recommended to take powerful measures to promote the process of privatization and economic performance of the economic entities.

The controlling shareholder of a firm may suffer as a result of its right to control the firm due to unfavorable market reactions associated with concerns on private benefit extraction by the controlling shareholder. Thus, the controlling shareholder has an incentive to build a good governance mechanism as a commitment device in order to discipline itself, which allows it to sell shares at a higher price in the initial public offering (IPO). An improvement in pricing efficiency will give the controlling shareholder more incentive to limit its private benefits from controlling the firm. Therefore, we propose that, besides improving the efficiency of capital allocation, the development of the financial market can shape the corporate governance of firms in an economy, thus improving firm operation efficiency. A model of IPO is constructed to demonstrate this mechanism of market discipline. Using data from China stock market on the regulatory changes in IPO pricing and firm ownership structure, we find evidence consistent with the model’s implications.

This paper examines the effects of the agency costs on firm value in 156 Chinese publicly listed companies with individual ultimate owners between 2002 and 2007. The ultimate owners’ agency costs, as measured by the divergence between control rights and cash flow rights, are shown to negatively and significantly affect firm value, as measured by the market-to-book ratio of assets (an approximation of Tobin’s Q). As the agency costs grow, the stock returns decrease around the connected party transaction announcements, and firms are more likely to engage in value-destroying connected party transactions. These effects are particularly strong for some types of connected party transactions, notably loan guarantees and direct fund transfers. Further, as the agency costs grow, the firms violate laws more frequently and the nature of legal violations becomes more severe. Evidence from an exogenous policy shock, the non-tradable share reform confirms that higher agency costs cause more unfavorable stock market reactions to connected party transaction announcements.

In this paper we argue that ine? cient bank loans can reduce the value of borrowing ?rms when the expropriation of minority share- holders by controlling shareholders is a major concern. Using data from Chinese ?nancial market, we ?nd that bank loan announcements generate signi?cantly negative abnormal returns to borrowing ?rms. The share devaluation following loan announcements are concentrated in ?rms that are perceived to be more vulnerable to controlling share- holders?expropriation. In addition, we ?nd weak evidence that bank quality mitigates the negative market reactions.

This paper investigates pay dispersion and its effects on firm performance in China’s listed firms. Due to weak investor protection and an inefficient legal system, China is expected to have a lower level of corporate governance. In this weak institutional environment, we argue that awarding sufficient power and high pay to CEOs is helpful to increase firm performance. Using data from 2002 to 2007, we find that pay dispersion is related to tournament incentives and agency factors. Importantly, we find evidence that pay dispersion is positively related to firm performance which is consistent with our primary hypothesis. In addition, the relation is more positive when the firm is controlled by the state. Our results are robust to corrections for endogeneity between pay dispersion and firm performance and to several alternative measures of pay dispersion and firm performance.

Applying the principle of the bonding theory, this study examined the relationship between corporate governance practice and performance of Chinese firms that are listed in the major international stock exchanges, including NASDAQ, New York, Hong Kong, Singapore and London AIM markets, and further investigated whether the Chinese firms that adopted the corporate governance mechanisms of the stock exchanges where they are listed would outperform those of firms listed locally in the Chinese stock exchanges that operates in a weak enforcement mechanism environment. Hypotheses are tested using panel data analysis. The results suggest that the Chinese cross-listings exhibit bonding premium only in U.S. markets, while those non-cross-listed Chinese firms demonstrate better firm performance than those listed in London, Singapore, and Hong Kong. Further, the results reveal that for all the cross-listed Chinese firms, profitability rate and the leverage ratio play a positive role in improving the firms’ performance. The adoptions of Big Four auditing firms and international accounting standard as a must-to-do corporate governance mechanism regulated by the host stock exchange has less effects on firm’s performance. The study suggests that merely borrowing a corporate governance mechanism does not guarantee the improvement of corporate governance of a firm, and therefore to its firm performance; rather, a firm’s own background and country effects also matter.

Applying the principle of the bonding theory, this study examined the relationship between corporate governance practice and performance of Chinese firms that are listed in the major international stock exchanges, including NASDAQ, New York, Hong Kong, Singapore and London AIM markets, and further investigated whether the Chinese firms that adopted the corporate governance mechanisms of the stock exchanges where they are listed would outperform those of firms listed locally in the Chinese stock exchange that operates in a weak enforcement mechanism environment. Hypotheses are tested using cross sectional data. The empirical tests show a mixed result. The cross-listings in New York and NASDAQ (dual-listing is excluded) exhibit bonding premium, while those noncross- listed Chinese firms demonstrated better firm performance that those listed in London, Singapore, and Hong Kong. Further, the study shed some lights on the relative importance of various corporate governance mechanisms in enhancing the firm performance in the context of the dominance of state-owned-enterprises in the market. The results reveal that different market has different corporate governance mechanisms under its different macro-environments. For the overall Chinese listings, the second largest shareholder of a firm could play a role as an effective corporate governance mechanism in increasing the firm’s performance. A negative relationship between the size of the board and the corporate governance was found. For those cross-listed Chinese firms, by adopting the stringent financial disclosure and the famous auditing firms could increase the firm performance, but not good enough comparing to these non-cross-listed Chinese firms. Meanwhile, controlling shareholder has negative effect on firm performance for the cross-listed Chinese firms. The study suggests that merely borrowing corporate governance mechanism does not guarantee the improvement of corporate governance (further to its firm performance), rather, firm’s own background and country effects also matter.

To understand the interaction between internal control mechanism and the mar- ket for control, using a di¤erences-in-di¤erences methodology, we examine CEO turnover following an exogenous decline of takeover threats? second generation of antitakeover legislation in the U.S. Di¤erent from previous research using only time series variation in CEO turnover, we ?nd that, compared to a control group, the sensitivity of CEO turnover to performance increased for the ?rms a¤ected by the laws. The increases are both statistically and economically signi?cant. We also ?nd that the increases in the sensitivity of CEO turnover to performance are concentrated in the ?rms with bad internal governance. Our results suggest that internal control mechanism and the market for control may be substitutes instead of complements.

This study aims to examine empirically whether ownership structure and corporate governance mechanisms affect income-smoothing behavior in China. The sample comprises 1353 companies listed in the Shanghai Stock Exchange and the Shenzhen Stock Market during the period 1999 to 2006. By comparing the variability of income to the variability of sales an income smoother can be identified if income is less variable. Our empirical results show that the proportion of Chinese firms practicing income-smoothing is greater than those of Singaporean, Japanese and U.S. firms. Income smoothing in China is more severe when the state is the controlling shareholder of the listed firm. Firms with more independent directors are more likely to engage in income smoothing. This article presents the current development of China’s corporate governance system and indicates that agency conflicts between controlling shareholders and minor investors account for a significant portion of earnings management in China.