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

Abstract

Corporate governance is widely suggested by economists and regulators as a solution to reduce agency problems and improve firm performance. However previous studies have failed to generate consistent results. Using a dynamic panel system GMM estimator to alleviate endogeneity concerns we determine the effect of corporate board structure on the performance of a panel of 1265 Chinese firms listed on the Shanghai and Shenzhen stock exchanges from 2010 to 2016. We compare the dynamic system GMM estimator to some commonly used estimators; ordinary least squares (OLS), fixed effects (FE) and the dynamic OLS, and show that these estimates are biased due to endogeneity. The dynamic system GMM estimator incorporates the dynamic nature of internal governance choices to provide valid and powerful instruments that address unobserved heterogeneity and simultaneity. Our results show support for the board model corporate governance mechanism. We find that board size is positive and significantly related to both return on assets and total net profit margin. In addition board independence is positive and significantly related to return on assets but insignificantly related to total net profit margin. Duality was found to have a negative but statistically insignificant relation with firm performance.

Influence dynamique de la séparation des fonctions de Président du Conseil d'Administration et de Dirigeant sur la performance des entreprises

“…La plupart des liens entre les variables de gouvernance d'entreprise sont désormais établis à l'aide des estimateurs dynamiques (Akbar et al, 2016;Alipour et al, 2019;Al-Sartawi & Sanad, 2019; Y.-K. Chang et al, 2015;Duru et al, 2016;Kong et al, 2020;Kyereboah-Coleman, 2008;Naciti, 2019;Nguyen et al, 2015;Pham et al, 2011;Shao, 2019;Wintoki et al, 2012). Lorsqu'on s'intéresse aux variables de gouvernance d'entreprise, la prise en compte des relations dynamiques entre les construits devient une nécessité afin d'éviter des biais (Bazdresch et al, 2018;Coles et al, 2012;Dang et al, 2015;Wintoki et al, 2012).…”

Exploring the Relationship Between Corporate Goernance Mechanism and Financial Performance : Evidence From Listed Companies

“…In numerous situations, the link between corporate governance procedures and financial performance has been extensively researched. Corporate governance structures are critical for ensuring that a firm works successfully and without misuse, as well as for addressing any conflicts between owners and those who manage their money [1]. Good corporate governance can help prevent management from engaging in unethical actions, such as earnings management, and can be an effective way to control management [2].…”

“…A study of Romanian companies found a positive relationship between net accounting results, earnings per share and CEO duality, but a negative relationship between price per share and CEO duality [5]. Another study on Chinese firms found that board size is positively and significantly related to both return on assets and total net profit margin, while board independence is positively and significantly related to return on assets but insignificantly related to total net profit margin [1]. In summary, there is evidence to suggest that corporate governance mechanisms can positively impact financial performance.…”