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ENQUIRE PROJECT DETAILS BY GENERAL PUBLIC |
| Project Details |
| Funding Scheme : | General Research Fund | ||||||||||||||||||||||||
| Project Number : | 14605218 | ||||||||||||||||||||||||
| Project Title(English) : | Corporate Boards in China | ||||||||||||||||||||||||
| Project Title(Chinese) : | 中國公司董監事會制度研究 | ||||||||||||||||||||||||
| Principal Investigator(English) : | Prof Xi, Chao | ||||||||||||||||||||||||
| Principal Investigator(Chinese) : | 習超 | ||||||||||||||||||||||||
| Department : | Faculty of Law | ||||||||||||||||||||||||
| Institution : | The Chinese University of Hong Kong | ||||||||||||||||||||||||
| E-mail Address : | chaoxi@cuhk.edu.hk | ||||||||||||||||||||||||
| Tel : | 39431142 | ||||||||||||||||||||||||
| Co - Investigator(s) : |
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| Panel : | Humanities, Social Sciences | ||||||||||||||||||||||||
| Subject Area : | Social and Behavioural Sciences | ||||||||||||||||||||||||
| Exercise Year : | 2018 / 19 | ||||||||||||||||||||||||
| Fund Approved : | 767,494 | ||||||||||||||||||||||||
| Project Status : | Completed | ||||||||||||||||||||||||
| Completion Date : | 30-6-2022 | ||||||||||||||||||||||||
| Project Objectives : |
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| Abstract as per original application (English/Chinese): |
The aim of this project is to explore empirically the important question: what is the role and workings of corporate boards in mainland Chinese listed firms.
Corporate boards play a central role in the governance of public companies. The board takes important decisions on such matters as the undertaking of major projects and the hiring of senior executives. It also controls and monitors, so as to align managerial interests more closely with shareholder (and stakeholder) interests. In the past two decades, a string of corporate scandals has thrust the board into the very centre of corporate governance reforms in China and worldwide. Although the comparative literature on the changing board characteristics has been rapidly expanding, the role and workings of Chinese corporate boards remain seriously understudied and under-theorised. This project aims to fill this important lacuna, and thereby to enhance significantly our understanding of corporate governance reforms both in mainland China and more generally.
The project will investigate both types of board – the board of directors and the supervisory board – used in China’s management-supervisory dual-board structure. Drawing on two unique, hand-collected datasets on the dual-boards of Chinese listed firms, as well as qualitative data on the behavioural strategies of board members to be obtained with the support of a network of collaborating PRC securities regulators, this project will present new insights into, among other things, the pattern of board composition, structure and independence, the determinants of board members’ observable behavior (such as voting behavior), and the impact of recent board reforms on the governance of Chinese listed firms.
It is anticipated that the systematic, empirical and comparative analysis of corporate boards in China, which this project offers, will inform and help to generate a more grounded theory for better understanding the role that board reforms play in the protection of shareholder interests and the development of national securities markets, with particular reference to China but also more generally. The importance of such understanding is enhanced by the fact that major China-based corporations are now becoming significant global players as well.
The theoretical and empirical findings of this project will also contribute to better minority shareholder protection in China, as the effectiveness of the legal and regulatory reforms aimed at strengthening shareholder rights is critically dependent on the manner in which boards are held accountable to shareholders.
本研究旨在通過實證方法研究中國上市公司董監事會的作用和運作方式。 董監事會在上市公司治理中扮演至關重要的角色。一方面，董監事會承擔決策職責，決定公司重大投資項目，招聘高級管理人員。另一方面，董監事會還扮演監督者的角色，督促公司管理人員勤勉履職，對公司股東和利益相關方負責。近年來，在中國和世界其他國家不時出現上市公司醜聞，使得董監事會制度成為公司治理改革的重中之重。對於董監事會制度的比較法學研究日益增多，然而對中國董監事會作用和運作方式的實證研究尚付闕如。本課題試圖填補此研究空白，以期加深對公司治理改革的理論和實證研究。 本課題研究對象包括中國上市公司的董事會和監事會。根據定量研究需要，本課題創建兩個特別的資料庫，並系統收集董監事行為特徵的定量資料，希冀在此基礎上研究若干重要問題，例如中國董監事會的組成、結構和獨立性，董監事行為（特別是表決行為）的決定因素，董監事會改革舉措對中國上市公司治理的影響等。 本研究通過系統性的實證和比較分析，將在理論上進一步揭示董監事會制度改革在保護中小股東利益和發展證券市場中的作用。 |
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| Realisation of objectives: | Quantitative and qualitative investigation undertaken under the project has been guided by, and directed to fulfill, its five objectives. All five objectives have been successfully and fully achieved. Objective 1: To articulate the historical, economic and political contexts in which the legal and regulatory framework for China’s management-supervisory dual-board structure has evolved This component of the project has relied primarily on materials derived from secondary sources. A comprehensive documentary archive has been created, tracing the evolution and functioning of corporate boards under Chinese law. This archive collects not only published materials that are more readily accessible (such as research monographs, yearbooks, journal articles, and newspaper entries), but also materials that are ‘internal’ in nature, yet are not classified or otherwise confidential. The latter include ‘internal’ policy reports, and ‘internal’ policy addresses. They are particularly useful for gaining an insight into the academic and policy debates on how best to reform China’s corporate board structure, composition, and independence, among others. These secondary materials are supplemented, importantly, by elite interviews. Interviews have been conducted with senior and rank-and-file officials, both serving and former, at the regulatory bodies who were involved in the development of China’ corporate board legal regime. These interviews have shed light on the underlying, often times undocumented, considerations that account for the regulatory initiatives taken on improving board independence and accountability, as well as their institutional constraints. Objective 2: To examine empirically the composition, structure and independence of both boards of directors and supervisory boards in Chinese listed companies; Objective 3: To discern empirically the determinants of the behavioural patterns exhibited by board members of Chinese listed firms; and Objective 4: To determine empirically the impact of recent board reforms on the governance of Chinese listed firms; In order to achieve Objectives 2, 3 and 4, two distinct, albeit related datasets have been constructed, one focusing on the characteristics of the boards of directors (BoDs) of all Chinese listed firms during the 2004-2017 period, and the other on the attributes of these firms’ supervisory boards (SBs) during the same period. Board of Directors Dataset The BoD Dataset comprises data on board memberships, board committees, and board resolutions and the results of voting thereon. Construction of the BoD Dataset is based primarily on company disclosures of BoD meetings, collected from CNInfo, an officially designated source for Chinese listed firms to make disclosures. These disclosures contain useful quantitative data on, inter alia, the dates and venues of BoD meetings, the number of board members present or represented, the nature of each of the resolutions voted on, and the voting results of each resolution (the numbers of “for” votes, votes “against”, and votes “withheld”). The BoD Dataset includes, additionally, data on a cohort of selected independent variables, including firm’s characteristics (including market capitalisation, ownership structure, identity of the controlling shareholder, financial performance, level of institutional shareholdings, and voting arrangements) and the complex set of constraints facing board members (including, inter alias, any prior enforcement actions taken by securities regulatory authorities against directors, and board members’ prior professional experience). Supervisory Board Dataset The SB Dataset comprises data on board memberships, and board resolutions and the results of voting thereon. Similar to the BoD Dataset, construction of the SB Dataset is based on company disclosures, including votes cast at SB meetings. It also shares with the BoD Dataset data on a similar cohort of selected independent variables, including the aforementioned firm characteristics and other constraints, that might impact on SB members’ behaviour. Elite Interviews The private, confidential nature of the behind-the-scenes interactions of corporate boards means that they are usually unobservable in studies that rely entirely on publicly available data. Therefore, in addition to the quantitative data described above, elite interviews have also been carried out to acquire valuable qualitative data that help achieve the objectives 2, 3 and 4. I have interviewed BoD and SB members of the Chinese listed firms, as well as the controlling shareholders of those firms (or their representatives in the case of state-owned firms). Lines of questioning will include, among others: how do inside BoD and SB members interact with the shareholders that appoint them in setting board agendas; how do outside/ independent directors get identified and nominated; how do inside members of BoD and SB interact with outside/independent directors on issues susceptible to majority-minority conflict, particularly in the face of the majority-of-the-minority rule as applicable to related party transactions; how do outside/ independent directors balance the appointer-appointee relationship and the risks of being targeted by law enforcement for corporate wrongdoings; and so on. Interviews have also been conducted to gain a greater understanding of how listed firms and their controlling/ significant shareholders have been affected by, and have reacted to, recent board reforms. The interviewees included rank-and-file bureaucrats of the government agencies controlling the identified listed firms (in the case of state-owned firms) as well as institutional investors (in the case of firms with a significant institutional shareholder presence). Moreover, interviews have also been carried out with officials of the China Securities Regulatory Commission, as well as executives of the Shanghai and Shenzhen Stock Exchanges, who are responsible for the making and enforcement of the rules and regulations on corporate boards. Quantitative observations arising from the two hand-collected Datasets above have been discussed during the interviews. Objective 5: To propose a more grounded theory for better understanding the role that board reforms play in the development of national securities markets, with particular reference to China but also more generally Building on the quantitative and qualitative research described above, I have successfully engaged in work of conceptualization and generalization, and have developed a theoretical framework that enriches the comparative discourse on corporate board reforms. The theoretical findings form the basis of two journal articles currently under review, one of which is now at an advanced stage, with R&R offered by a top-ranked peer-reviewed journal (acceptance rate standing at 8%) in January 2023 and re-submission scheduled in summer 2023. It is anticipated that the publication result of the other submission to a leading peer-reviewed journal in the field will become known in H2 2023. | ||||||||||||||||||||||||
| Summary of objectives addressed: |
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| Research Outcome | |||||||||||||||||||||||||
| Major findings and research outcome: | Research outputs of the project include: • Five articles have been published or accepted for publication in leading/respectable peer-reviewed journals, all acknowledging support from the present project (see Part C, section 8). • Three journal articles are currently under review, one of which is presently at an advanced stage, with R&R offered by a top-ranked peer-reviewed journal (acceptance rate standing at 8%) in January 2023 and re-submission scheduled in summer 2023. It is anticipated that the publication results of the other two submissions to leading peer-reviewed journals will become known in H2 2023. • One chapter contribution has been accepted by the editors of an edited volume, which I understand is being actively considered by a top-rated academic publisher. • Five conference/seminar presentations have been delivered at international or regional academic events. In addition, one knowledge transfer event has been organised to disseminate the project’s research outcomes. The major findings of the project include: • Board-level governance reforms have been central and core to China’s corporate governance movements in the past two decades. The focus has been on enhancing board independence and accountability, particularly by assigning an increasingly wider range of governance roles to independent directors. A notable example is to place independent directions at the centre of policing transactions that are susceptible to majority-minority conflict (e.g. related-party transactions). • China’s board legal regime differs importantly from most other jurisdictions by imposing out-of-pocket (financial) liability on independent directors by way of securities enforcement actions, in addition to reputational sanctions. This finding helps to enrich the comparative discourse on director liability. • There is empirical evidence that observable (e.g. voting) and unobservable (e.g. behind-the-scenes dynamics) behaviour patterns of board members are sensitive to not only the nature of specific board resolutions, but also to a range of firm-level attributes (e.g. identity of the controlling shareholder) and institutional constraints (e.g. securities enforcement actions). This finding adds to the emerging strand of comparative legal scholarship on the role and workings of corporate boards. • There is no conclusive evidence that regulatory interventions aiming at curbing perceived directorial entrenchment (including such arrangements as staggered board) helped to enhance shareholder wealth, a finding that challenges received wisdom in the legal scholarship. | ||||||||||||||||||||||||
| Potential for further development of the research and the proposed course of action: |
The project’s findings help to lay a strong foundation for a teamwork-based comparative study on corporate board legal reforms around the world, potentially leading to a research handbook or edited volume on the topic. I plan to draw on my earlier editorial experience (as a co-editor of the Cambridge Handbook of Shareholder Engagement and Voting, Cambridge University Press, 2022) and to explore the scope of such an international collaborative project. | ||||||||||||||||||||||||
| Layman's Summary of Completion Report: | Corporate boards play a central role in the governance of public companies. The board takes important decisions on such matters as the undertaking of major projects and the hiring of senior executives. It also controls and monitors, so as to align managerial interests more closely with shareholder (and stakeholder) interests. In the past two decades, a string of corporate scandals has thrust the board into the very centre of corporate governance reforms in China and worldwide. Although the comparative literature on the changing board characteristics has been rapidly expanding, the role and workings of Chinese corporate boards remain seriously understudied and under-theorised. The present project helps to fill this important lacuna. It has investigated both types of board – the board of directors and the supervisory board – used in China’s management-supervisory dual-board structure. Drawing on two unique, hand-collected datasets on the dual-boards of Chinese listed firms, as well as qualitative data gleaned from interviews, this project has presented new insights into the role and workings of corporate boards in mainland Chinese listed firms. Overall, the project helps to enhance significantly our understanding of corporate governance reforms both in mainland China and more generally. | ||||||||||||||||||||||||
| Research Output | |||||||||||||||||||||||||
| Peer-reviewed journal publication(s) arising directly from this research project : (* denotes the corresponding author) |
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| Recognized international conference(s) in which paper(s) related to this research project was/were delivered : |
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| Other impact (e.g. award of patents or prizes, collaboration with other research institutions, technology transfer, etc.): |
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| SCREEN ID: SCRRM00542 |