Essays on corporate governance issues in China

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School of Business | Doctoral thesis (article-based) | Defence date: 2007-03-30
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Date
2007
Department
Major/Subject
Rahoitus
Finance
Mcode
Degree programme
Language
en
Pages
187 s.
Series
Acta Universitatis oeconomicae Helsingiensis. A, 295
Abstract
The main objective of this thesis is to contribute to the literature on corporate governance issues associated with concentrated ownership through three interrelated essays. All three essays use data from the Chinese stock markets. One of the unique features of the Chinese stock markets is the concentration of ownership and control rights in the hands of state-owned-enterprises (SOEs), which provides opportunities for examining some of the corporate governance issues that have not been addressed in other markets. Taken together, the three essays provide direct systematic evidence showing that ownership concentration is beneficial to minority shareholders, as it can align the interests of large shareholders with those of minority shareholders. In contrast, concentration of control rights can lead to expropriation of minority shareholders by large shareholders, especially when large shareholders have control rights in excess of their cash-flow ownership. The first essay investigates earnings management behavior of SOEs conducting initial public offerings (IPOs) on the Shenzhen Security Exchange. The results show that the earnings management behavior of IPO firms has a strong link to governmental regulations on IPO pricing. When the pricing system is based on pre-IPO earnings, firms manipulate their earnings in the pre-IPO years. When the pricing system is based on earnings in the IPO year, firms manage their IPO-year earnings. When the pricing system does not link directly to accounting earnings, IPO firms have less incentive to manipulate earnings. The second essay examines the separation of ownership and control in the Shenzhen Security Exchange and the impacts of such separation on firm performance, related-party lending and cash dividend policy. The results show that the ownership and control of publicly traded firms are highly concentrated in the hands of SOEs. Higher ownership concentration is associated with better firm performance, less related-party lending and more cash dividends. In contrast, greater separation of ownership from control is associated with worse firm performance, more related-party lending and less cash dividends. The third essay examines related-party transactions between listed firms and their controlling shareholders following reverse mergers on the Shenzhen Security Exchange. The results show that, on average, firms undertaking related-party transactions following reverse mergers earn significantly positive excess returns around the announcement. Most of the positive excess returns are driven by two kinds of transactions: transactions through which the new controlling shareholders bring their main business into the listed firms and transactions through which the new controlling shareholders bail out financially distressed firms
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Supervising professor
Torstila, Sami, professor
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