Law, Economics, Corporate Governance, and Corporate Scandal in a Transition Economy: Insight from China - PowerPoint PPT Presentation

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Law, Economics, Corporate Governance, and Corporate Scandal in a Transition Economy: Insight from China

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Link firm characteristics and institutional variables with corporate scandals ... Corporate scandals - CSRC, SHSE and SZSE's enforcement of security regulations ... – PowerPoint PPT presentation

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Title: Law, Economics, Corporate Governance, and Corporate Scandal in a Transition Economy: Insight from China


1
Law, Economics, Corporate Governance, and
Corporate Scandal in a Transition Economy
Insight from China
  • Discussion by
  • TJ Wong

2
Objective of paper
  • Link firm characteristics and institutional
    variables with corporate scandals
  • Firm characteristics - ownership type,
    ownership, governance variables
  • Regional institutional variables - market
    development and legal systems
  • Corporate scandals - CSRC, SHSE and SZSEs
    enforcement of security regulations

3
Interesting features
  • Firms that were identified by CSRC, SHSE and SZSE
    as fraudulent
  • Not just linking ownership or governance with
    accounting, they also look at institutions where
    the firm is located

4
Key findings
  • Ownership type matters
  • Ownership matters
  • Some governance variables matters
  • Fewer scandals in rich regions
  • Legal system matters

5
Puzzles
  • Regulators incentives
  • Need to understand regulators incentives.
    Government has such close ties with firms.
  • Donald Tong (CSRC) government being the
    regulator and owner.
  • Who commits the fraud? What are the motives for
    committing the fraud? What types of fraud? Who
    actually benefit from it?
  • What are the agency conflicts? Govt vs.
    shareholders intervention shareholders vs.
    managers stealing.

6
Hypotheses
  • H1 Measuring ultimate or immediate owner?
    Comparing firms with one-layer vs. multiple
    layers, or government vs. private firms?
  • Government firms are less associated with
    scandals because CSRC is less strict on them?
  • H2 If ultimate owner is government, why would
    increase in ownership concentration in the low
    range increase incentive to monitor managers?
  • H3 What does independence mean? What agency
    conflicts? Govt vs. shareholders or shareholders
    vs. managers?
  • Directors, chairman and supervisors share
    ownership. Need to explain why matters if
    property rights so poorly defined.

7
Top-down approach
  • Aim to understand regulators and firms
    incentives
  • Under what conditions would ownership (ultimate)
    matter? Under what conditions would corporate
    structure (layers) matter? Would board structure
    or other CG mechanisms (auditor type) matter at
    all?

8
Incentives and conflicts
Central or Local Govt
Regulator
Govt or Private Owner
Firm
Market Legal systems
9
Use partitioning variables
  • Industry central government may want to help
    certain industries, thus, more lenient.
  • Govt vs. private. Same thing. Regulators may have
    different incentives.
  • Places where government intervention more severe,
    would government ownership vs. private ownership
    be different. More intervention related scandal?
  • In places where legal system, more stealing or
    asset stripping?
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