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The Role of Financial Institutions in the Corporate Governance of Listed Chinese Companies

Authors


  • *We are grateful to Zhiliang Li, Xiaodong Liao, Qiaohong Ma, Aixiang Pan, Bin Wang, Xiuxiang Wang, Zhihua Xie, Youhong Yang and Dewu Zheng for their valuable assistance in arranging the interviews on which this paper is based. We thank the 30 interviewees for providing their valuable responses and cooperation. We acknowledge financial support from the Chinese Accounting, Finance and Business Research Unit at Cardiff University. Finally, we appreciate the useful comments provided by Roy Chandler.

Corresponding author email: xiao@cardiff.ac.uk

Abstract

This paper explores the role of Chinese financial institutions in the corporate governance of listed companies through interviews with both senior managers of financial institutions and board directors of listed companies. Our results show that, while most securities companies are passive investors, a good proportion of the active mutual funds help their portfolio companies prepare financial forecasts, standardize their operations, raise external funds, strengthen their company image in the capital markets, and sometimes intervene in corporate issues. This limited role can be attributed to a number of factors specific to the Chinese context including highly concentrated state ownership, an immature regulatory environment, inadequate transparency and disclosure of financial information, and weak corporate governance within financial institutions themselves. It could also be affected by several other factors that are considered to cause institutional passivity in developed countries such as conflicts of interest, monitoring costs and lack of expertise.

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