Does Market Globalization Affect Corporate Governance Structure and Governance Quality? Evidence from Chinese Companies

Abstract

In this study, we use overseas listing and overseas incorporation as two attributes of market globalization and examine their impacts on corporate governance structures (internal governance mechanisms), and corporate governance quality. Based on a sample of Top 100 Chinese listed firms, our results indicate that governance structures of a Chinese company depend whether it is registered (or listed) in mainland China or abroad. The governance structures of overseas-incorporated Chinese companies are characterized by the stock-option remuneration for executives and the function of special committees. However, the governance structures of overseas listed companies are quite similar to those locally-listed, characterized by the existence of supervisor committee, rare executive ownership, and the at-least-one-tier proportion of independent directors in board. We further test which governance mechanism(s) is (are) positively associated with governance quality. Out results indicate that only the number of special committees is significantly linked with governance-quality ranking, but the sign of correlation is negative. Overall, we conclude that Chinese companies do set up their internal governance mechanisms as regulated by the law and rules, which are promulgated by either Chinese or overseas authorities. Comparing with the local companies, the overseas companies do not present improved corporate governance, despite that their external governance mechanisms are more efficient and that their internal governance mechanisms are more market-orientated than do the local ones.

Keywords: market globalization, governance structure, governance quality

JEL Classification: M40, M47, G34, J33