Dynamic study of corporate governance structure and firm performance in China

Abstract

Purpose The paper aims to provide a comprehensive investigation of the relationship between corporate governance (CG) structure and firm performance in Chinese listed firms from 2001 to 2015. The authors’ motivation derives from the fact that the CG system in China is different from those in the US, the UK, Germany, Japan and other countries. Design/methodology/approach A large unbalanced sample, covering more than 22,700 observations in Chinese listed firms, was used to explore, by means of a system-generalized method-of-moments (GMM) estimator, the relationship between CG structure and firm performance to remove potential sources of endogeneity. Findings Results show that Chinese CG structure is endogenously determined by the CG mechanisms investigated: there is no relationship between board size (including independent directors) and firm performance; CEO duality has a significantly negative effect on firm performance; concentration of ownership has a significantly positive influence on firm performance; managerial ownership is negatively correlated with firm performance; state ownership has a significantly positive effect on firm performance; and a supervisory board is positively correlated with firm performance. Practical implications The findings provide policymakers and firm managers with useful empirical guidance concerning CG in China. Originality/value Few integrative studies have examined the impact of CG structure on firm performance in China. This study adds new empirical evidence that the relation between CG structure and performance in China is endogenous and dynamic when controlling for unobserved heterogeneity, simultaneity, and dynamic endogeneity.

Corporate Governance Mechanisms, Ownership and Firm Value: Evidence from Listed Chinese Firms

“…Previous studies on corporate governance around the world show that there is still no consensus on the corporate governance-firm performance relation (Wintoki et al 2012;Roberts and Whited 2013;Shao 2019). A possible cause is that some methodologies do not address endogeneity issues which are pervasive in corporate finance efficiently (Roberts and Whited 2013).…”

“…In the governance research, endogeneity can also arise from the possibility that current values of governance variables are a function of past firm performance-dynamic endogeneity (Schultz et al 2010;Wintoki et al 2012). As a remedy to the endogeneity problem some studies adopt the system GMM method (Holtz-Eakin et al 1988;Arellano and Bond 1991;Arellano and Bover 1995;Blundell and Bond 1998;Wintoki et al 2012;Roberts and Whited 2013;Zaefarian et al 2017;Sheikh et al 2018;Ullah et al 2018;Shao 2019).…”

The Board Model Corporate Governance Mechanism and Financial Performance of Non-financial Listed Chinese Firms

“…To the best of our knowledge, our paper is the first to comprehensively address the impact of the board model corporate governance mechanism on firm performance in the Chinese institutional setting by; (1) using the efficient dynamic panel system GMM estimator, (2) estimating four models for the dependent variable-firm performance: The OLS model, fixedeffects model, dynamic OLS model and the system GMM model to enable comparison of empirical results from this research to those established in previous research and to highlight the potential problems from ignoring that dynamic relation between current corporate governance structure and current firm performance, (3) empirically determining the number of lags required to capture all relevant past performance which allows us to use older lags which are exogenous with residuals of present as instruments, an important facet when estimating the dynamic panel system GMM. Previous studies just estimate the dynamic panel system GMM and interpret the results (Shao 2019). They do not empirically show the differences with other methodologies and how the instruments are generated.…”

Governing Board Attributes as Profitability Influencers under Endogeneity: An Econometric Analysis in South Africa

“…This study is also motivated by recent literature on corporate governance and corporate performance (Zabri, Ahmad, & Wah, 2016;Habib, 2016;Scafarto, Ricci, Corte, & De Luca, 2017;Bhabra & Eissa, 2017;Paniagua, Rivelles, & Sapena, 2018;Shao, 2019). However, this study extends the range of investigations from the recent literature but differs in scope by performing a comprehensive analysis and understanding of board as a profitability influencer using board size, board independence, and CEO duality, with the additional variables of board interlocks and board skills as proxies for the board structure.…”

“…The contribution of this study has, firstly, established which econometric method is superior when dealing with corporate governance and, secondly, identified the board attributes that act as profitability influencers. Prior research ignored the endogeneity issue by using traditional ordinary least squares (OLS) or fixed-effects methods that can have severe consequences for inference (Shao, 2019). Specifically, the limitation in the governance literature is due to endogeneity issues stemming from unobservable heterogeneity, simultaneity and dynamic endogeneity (Wintoki, Linck, & Netter, 2012).…”