The Usefulness of the Supervisory Board Report in China

14 Pages Posted: 19 Oct 2003

See all articles by Jay Dahya

Jay Dahya

Zicklin School of Business, Baruch College - The City University of New York

Yusuf Karbhari

Cardiff Business School

Jason Zezhong Xiao

Cardiff Business School, Cardiff University

Mei Yang

Beijing Technology and Business University

Abstract

Chinese listed companies adopt a two-tier board structure, a Board of Directors (BoD) and a Supervisory Board. They are also required to provide in their annual reports a supervisory board report (SBR). However, Congquin, a listed company, failed to issue a SBR in its 1998 annual report. This study specifically investigates the usefulness of the SBR by examining the stock market reaction to Congquin's SBR omission. The study also examines the Supervisory Board's reporting process and users' perceived usefulness of the SBR through interviews with directors, supervisory board members and senior executives of 16 listed companies. Discussions were also held with financial analysts, regulatory officials and academics. Our event study suggests that the absence of the SBR in Congquin's 1998 annual report caused a negative market reaction suggesting that investors had considered the SBR and the Supervisory Board important and were discouraged by the problems manifested by the absence of the SBR. Our interviews reveal that the usefulness of the SBR depends on the role that the Supervisory Board plays in corporate governance. If the Supervisory Board is an honoured guest, a friendly advisor, or a censored watchdog, it is unlikely that the SBR will convey much useful information. By contrast, if the Supervisory Board acts as an independent watchdog, then the SBR would be useful. Given the fact that the Supervisory Board in most of the companies that participated in the interviews fell into the first three categories, there remains a strong need to improve the usefulness of the SBR and strengthen the functioning of the Supervisory Board.

Suggested Citation

Dahya, Jay and Karbhari, Yusuf and Xiao, Jason Zezhong and Yang, Mei, The Usefulness of the Supervisory Board Report in China. Corporate Governance: An International Review, Vol. 11, pp. 308-321, October 2003. Available at SSRN: https://ssrn.com/abstract=444343

Jay Dahya (Contact Author)

Zicklin School of Business, Baruch College - The City University of New York ( email )

55 Lexington Ave., Box B13-260
New York, NY 10010
United States

Yusuf Karbhari

Cardiff Business School ( email )

Aberconway Building
Colum Drive
Cardiff, CF1 3EU
United Kingdom
+ 44 0 29 2087 6057 (Phone)
+ 44 0 29 2087 4419 (Fax)

Jason Zezhong Xiao

Cardiff Business School, Cardiff University ( email )

Aberconway building
Colum Drive
Cardiff, CF10 3EU
United Kingdom

Mei Yang

Beijing Technology and Business University

33 Fucheng Road
Beijing
China
86-10-68904669 68905698 (Phone)
86-10-68417834 68429857 (Fax)

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