Monitoring corporate boards: evidence from China

Hisham Farag (Lead Author), Christine Mallin

Research output: Contribution to journalArticlepeer-review

17 Citations (Scopus)
20 Downloads (Pure)

Abstract

China’s listed companies have two-tier boards comprising of a supervisory board and a board of directors. The supervisory board has the responsibility to oversee and monitor the board of directors. Similarly, the role of the independent non-executive directors (INEDs) is to advise and monitor directors. In this paper, we investigate the main board structure hypotheses namely the scope of operations, monitoring and negotiation hypotheses for a sample of Chinese Initial Public Offerings floated on both the Shanghai and Shenzhen stock exchanges. Our results provide evidence to support the three hypotheses. Interestingly, we find that the larger the size of the board of directors, the larger the supervisory board size. Moreover, we find that the higher the proportion of INEDs, the smaller the supervisory board size and this implies that INEDs are perhaps a substituting mechanism for the supervisors’ monitoring role. Finally, we argue that as the Chinese governance structure combines both the German and the Anglo-Saxon models, this creates a conflict between the two boards with respect to the monitoring role. Our results, therefore call for a comprehensive reform in the Chinese governance mechanism.

Original languageEnglish
Pages (from-to)524-549
Number of pages26
JournalEuropean Journal of Finance
Volume25
Issue number6
Early online date7 Sep 2017
DOIs
Publication statusPublished - 13 Apr 2019

Keywords

  • corporate governance
  • dual board structure
  • IPOs
  • monitoring boards

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