Monitoring Corporate Boards: Evidence from China

53 Pages Posted: 19 Sep 2017

See all articles by Hisham Farag

Hisham Farag

University of Birmingham - Birmingham Business School

Chris Mallin

Norwich Business School, University of East Anglia; University of Birmingham - Birmingham Business School

Date Written: August 15, 2017

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 (IPOs) 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.

Keywords: corporate governance, monitoring boards, dual board structure, IPOs

Suggested Citation

Farag, Hisham and Mallin, Christine, Monitoring Corporate Boards: Evidence from China (August 15, 2017). Available at SSRN: https://ssrn.com/abstract=3037496 or http://dx.doi.org/10.2139/ssrn.3037496

Hisham Farag (Contact Author)

University of Birmingham - Birmingham Business School ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

Christine Mallin

Norwich Business School, University of East Anglia ( email )

Norwich Research Park
Norwich, NR4 7TJ
United Kingdom

University of Birmingham - Birmingham Business School ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

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