This book is a study of corporate governance in the context of the Chinese economy. The starting point is that the observed patterns of corporate control and capital structure cannot be fully explained if the world is characterised by comprehensive contracts that define all the future contingencies. Rather, contracts are incomplete, and economic agents are endowed with rights to specify actions in future contingencies that are not explicitly written in prior contracts. The combination of the incompleteness of contracts and the separation of ownership and control leads to agency problems because managers (agents) have their private interests that may conflict with those of the shareholders (principals). There is thus a need for a sound governance system to ensure that managers work effectively to maximise shareholders' wealth.
The book focuses on four issues in corporate governance: ownership structure and the underpricing of initial public offering; ownership structure as a corporate governance mechanism; the determinants of capital structure; and a governance perspective of corporate groups. Correspondingly, there are four main chapters. The first looks at why IPOs are underpriced, and we find that there is a negative relationship between the largest shareholding and the extent of the underpricing. The second is an empirical study of the relationship between ownership structure and corporate performance. We find that corporate performance, measured by Tobin's Q, is positively related to ownership concentration, but negatively related to State ownership. In the third chapter, the study is extended to debt finance, investigating the determinants of capital structure, and we find that the determinants of capital structure in China are similar with those in other economies and agency costs have an effect upon the debt ratio. The fourth provides a political economy perspective on the governance structures of Chinese corporate groups, and we argue that the contemporary governance structures are dependent both upon the impacts of the previous centrally-planned economy and the path of transition to the market economy.
The book offers original contributions both in its theoretical work on corporate governance, and in the empirical studies of governance in China for which there has so far been very little published analysis.