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Law,CorporateGovernance,andCorporateScandalinChinaYiZhangPekingUniversityInternationalConferenceonCorporateGovernanceShanghaiMarch2005I.Introduction•IthasbeenovertenyearssincestockmarketsestablishedinChina.Chinastocksmarkethasbeenplayingarole.•thereexistsomanylistedfirmscommittedfraudandscandal•Since1992,about200listedfirmsamong1200havebeensubjecttosecurityenforcementactionbyChinaSecuritiesRegulationCommission(CSRC),ShenzhenStockExchange(SZSE)andShanghaiStockExchange(SSE).•TheratiooffirmswithscandalisfarabovethelevelofothercountriesMotivation•Whatcontributestofirm’sscandal?•DoescorporategovernancematterinChina?Isthereasoundcorporategovernancemechanismcouldpreventscandal?•Doeslegalandeconomicdevelopmentmatter?-Isthereadifferencebetweenfirmsinregionswithvariouslegaleffectiveness?-economicdevelopment?II.IssuesandHypothesis:-Corporategovernance-legal-economic-finance1.CorporateGovernance1.1.ownership•OneofthemostessentialfeatureoftheownershipofChineselistedfirmsisthedominanceofthelargestshareholder•Therehasnoeffectivemechanismtomonitorandrestrictthelargeshareholders•Thelargeshareholdercanexpropriatetheminorityshareholdersforprivatebenefit1.CorporateGovernance1.1.ownership•Jensen(1976)•Stulz(1988)•H1A:Astheownershipofthelargestshareholderincreasesfromzero,afirmismorelikelytobeassociatedwithscandal•Entrenchmentoflargeshareholders•Expropriationbylargeshareholder•LaPorta,Lopez-De-Silanes,Shleifer(1999)•LaPorta,Lopez-De-Silanes,Shleifer(2002)•Claessens,Djankov,Fan,andLang(2002)•FanandWong(2002)•H1B:Astheownershipofthelargestshareholderincreasesovercertainlevel,afirmismorelikelytobeassociatedwithscandal1.2FirmController•Thereisfundamentaldifferencebetweenstateandnon-stateshareholders•Thereishugedifferenceamongstateshareholdersininternalmonitoring,etc.-centralgovernment(bu/wei,中央部委）和-non-centralgovernment(非部委）•LiandZhang（2005）•LiandZhang（2004）•LinandZhang（2004）1.2FirmController-centralgovernment(bu/wei,中央部委）和-non-centralgovernment(非部委）•centralgovernmentcontrolled•localgovernmentcontrolled•localStateEnterprises(SOE)controlled•Non-statelegalpersoncontrolled•Naturalperson•others1.2FirmController•Centralgovernmentcontrolledfirmsareassociatedwithclearerownership,(alittle)moretransparency,moremonitoring•moresocialresponsibility，(maybe)betterprotectionofminorityshareholdersNon-centralSOEandnon-statelegalpersoncontrolledfirmsareassociatedwithlesstransparencyandlackofmonitoringuptolesssocialresponsibilitylackofprotectionofminorityshareholders•H2:Firmscontrolledbycentral(/local)governmentarelesslikelytobeassociatedwithscandal1.CorporateGovernance1.3Board•FamaandJensen(1983)theorizethattheboardofdirectorsisthehighestinternalcontrolmechanismresponsibleformonitoringtheactionsoftopmanagement.-thecompositionofindividualswhoserveontheboardofdirectorsisanimportantfactorincreatingaboardthatisaneffectivemonitorofmanagementactionsFama’s(1980)andFamaandJensen’s(1983)theorywouldpredictthathigherpercentagesofindependentdirectorsincreasetheboard’seffectivenessasamonitorofmanagement.•Jensen(1993)arguesthatboardsofdirectorareineffectivemonitorswhentheboardistoolarge,whentheboard’sequityownershipissmall,andwhentheCEOisalsotheChairmanoftheBoard.•compositionoftheboardofdirectorsdeterminesitseffectivenessDeFondandJiambalvo(1991)Beasley(1996)Dechow,SloanandSweeney(1996),etc.BoardcompositionanddisclosureChenandJaggi（2000）•Theboardsize•H3A:Firmwithalargerboardsizeismorelikelytobeassociatedwithscandal•Theboard-managementrelationship•TheCEO/Chairman•H3B:FirmwithaseparateCEOandChairmanislesslikelytobeassociatedwithscandal•Independentdirectors•Independentdirectors,comparedwithinsidedirectors,arelesslikelytocolludewithmanagement•H3C:Firmswithlowerproportion(seats)ofindependentdirectorontheboardofdirectorsaremorelikelytobeassociatedwithscandal•Directorholdings•H3D:Firmswithahigherratio(number)ofdirectorsholdfirmstockarelesslikelytobeassociatedwithscandal•ChairmanHolding•H3E:FirmswithhigherChairmanstockholdingarelesslikelytobeassociatedwithscandal•DirectorCompensation•H3F:Firmwithhigherratio(number)ofdirectorpaidarelesslikelytobeassociatedwithscandal1.4SupervisoryCommittee(BoardofSupervisors-监事会)•SupervisoryCommitteesize•H4A:FirmswithalargerSupervisoryCommitteesizeismore(less?)likelytobeassociatedwithscandal1.4SupervisoryCommittee(BoardofSupervisors-监事会)•SupervisoryCommitteememberholdings•H4B:Firmswithahigherratio(number)ofsupervisorsholdfirmstockislesslikelytobeassociatedwithscandal•SupervisoryCommitteememberCompensation•H4C:Firmwithhigherratio(number)ofSupervisoryCommitteememberpaidisless(ormore?)likelytobeassociatedwithscandal4．Institutioninvestors•机构投资者能够降低公司内部的代理成本，减少公司管理层的不良行为JarrellandPoulsen(1987)Brickley,Lease,andSmith(1988)机构投资者更倾向于反对减少股东财富的行为•机构投资者相比其他类型的投资者而言更需要透明度和信息的披露Healyetal.(1999)Bushee和Noe(2000)机构投资者更偏好购买那些持续披露信息的公司的股票•长期持有公司股票的机构投资者，很可能出于自身的利益而合谋进行不法行为•机构投资者可以从中得到的益处财务性的收益，如低于市价的转让价格，阻止封闭式基金的赎回以及承销、财务顾问方面的合同（Barclay,Holderness,和Pontiff(1993)）非财务性的收益，如影响公司在政治、经济或社会方面的政策就我国的实际情况而言，基金、证券等机构重仓持有上市公司的股票，利用内部信息进行炒作、牟取暴利已不是秘密因此，在我国机构投资者的持股比例同公司