Corporate Governance in China: Current Practices, Economic Effects and Institutional Determinants

This article provides a preliminary survey of the burgeoning literature on the Chinese listed firms' corporate governance. We structure the existing research around three themes: (1) What are the current corporate governance practices in China? (2) How do these corporate governance practices affect the Chinese listed firms' valuation and various corporate decisions? (3) How does China's unique institutional setting pre-determine the governance model adopted in China? The evidence indicates that the current governance practice adopted in China can be best described as a control-based model, which contrasts strikingly with the market-oriented model commonly used in the US and UK, and championed by most corporate governance advocates. The evidence also shows that Chinese firms, whose corporate governance practices deviate from the control-based model, demonstrate stronger performance, and tend to make decisions in line with the shareholders' interest. The evidence from the literature also suggests that the control-based model is rooted in the 'administrative governance' approach adopted by the Chinese regulatory authorities, and is tailed to China's specific institutional setting. (JEL classification: G3) Copyright 2006, Oxford University Press.