Political Connections and Minority-Shareholder Protection: Evidence from Securities-Market Regulation in China

Berkman, Henk; Cole, Rebel A.; Fu, Lawrence

doi:10.1017/s0022109010000608

Cited by 274 publications

(120 citation statements)

References 48 publications

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“…Second, in addition to economic objectives, the state pursues social and political objectives, such as provision of employment and social stability, that may not be in the interest of private investors who seek economic returns. Last, state ownership may shelter a firm from the enforcement of regulatory changes designed to improve the protection of minority shareholders (Berkman et al, 2010). Therefore, from this perspective, state ownership is predicted to weaken internal corporate governance, exacerbate the expropriation of shareholders who seek economic returns, and thus to be negatively related to financial performance.…”

Section: Internal Mechanism: Ownership Structurementioning

confidence: 99%

“…Some other regulations improved enforcement against corporate fraud (Hou & Moore, 2010), the propensity of auditors to issue modified audit opinions (Chen, Sun, & Wu, 2010), reduction in earnings management (Hsieh & Wu, 2012), and expropriation by controlling shareholders through intercorporate loans (Jiang et al, 2010). There is also evidence showing that shareholders reacted positively to regulatory changes designed to increase the voting rights of minority shareholders and those to regulate intercorporate loans and related-party transactions, especially among shareholders of firms with weaker internal governance mechanisms (Berkman et al, 2010). These findings suggest an improvement in the legal/regulatory mechanism.…”

Section: External Mechanisms: Laws/regulationsmentioning

confidence: 99%

“…For example, a series of regulations issued by the CSRC between 2001 and 2005 to stop intercorporate loans were largely ignored by the listed firms and their controlling entities, because market regulators had no jurisdiction over the controlling entities that were typically unlisted large SOEs (Jiang et al, 2010). Shareholders also did not expect that the regulators would enforce the new rules on firms with strong government ties or political connections (Berkman et al, 2010). Moreover, there is evidence that shareholders reacted negatively to regulatory changes on the sale of state-owned shares in the listed firms and reacted positively to a subsequent announcement to cancel the policy, suggesting that shareholders view the costs of noncompliance with the new rules to be outweighed by the benefits of political ties (Calomiris et al, 2010).…”

Section: External Mechanisms: Laws/regulationsmentioning

confidence: 99%

See 2 more Smart Citations

Empirical Research on Corporate Governance in China: A Review and New Directions for the Future

2015

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The ownership structure of Chinese firms has experienced significant changes over the last three decades, including the development of a fast growing stock market through which a large number of domestic firms have become publicly traded corporations. These changes have drawn increasing attention from researchers of corporate governance. In this article, we review the empirical research on corporate governance in China, with a focus on the internal and external governance mechanisms that have been investigated and the findings about the effectiveness of these mechanisms. On the basis of our review of 132 studies, we summarize the major findings and discuss the limitation of agency theory in understanding the governance issue in Chinese firms. We offer several ideas (e.g., the importance of the social context, new conceptualization of governance, different outcomes of governance, and data/method issues) for a new agenda to guide future research in the corporate governance of firms operating in the Chinese and other emerging economy contexts.

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Section: Internal Mechanism: Ownership Structurementioning

confidence: 99%

Section: External Mechanisms: Laws/regulationsmentioning

confidence: 99%

Section: External Mechanisms: Laws/regulationsmentioning

confidence: 99%

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Empirical Research on Corporate Governance in China: A Review and New Directions for the Future

2015

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“…They find that the regulation deters management from submitting value-decreasing equity offering proposals in firms with higher mutual fund ownership, suggesting that in weak investor protection countries, whether granting minority shareholders' more control over corporate decisions helps improve the quality of corporate decisions depends on the composition/sophistication of the minority shareholders. As to the efficacy of the legal refinement of investor protection, Berkman, Cole, and Fu (2010) examine the wealth effects of three regulatory changes designed to improve minority shareholder protection in the Chinese stock markets. They find that investors reward the increased minority shareholder protection more for firms with weaker corporate governance, while they react less to firms with strong ties to the government, suggesting that minority shareholders do not expect the regulators to enforce the new rules on firms with strong political connections.…”

Section: The Regulatory Environmentmentioning

confidence: 99%

Structural Changes in the Chinese Stock Market: A Review of Empirical Research

2014

China Account Financ Rev

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China’s stock market has gone through major structural changes since its inception in the early 1990s. In this survey article, we review the empirical literature published in 15 leading accounting and finance journals from 1998 to 2013 that documents these important structural changes. In analysing this literature, we focus on the ‘distinctiveness’ of the Chinese stock market compared with developed stock markets (e.g. US) and the research opportunities generated by the China setting. Key themes include China’s share issue privatisation (SIP) reforms, the political connections in privately owned companies, the characteristics of Chinese listed companies and their governance, the regulatory environment reforms in China, and the evolving role played by auditors and other information intermediaries.

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“…Zheng et al (2010) find that for companies that have received modified audit opinions from former auditors, political connections can help them to obtain a low ball fee quote from incumbent auditors. Berkman et al (2011) find that Chinese small investors are doubtful whether stricter regulatory measures can be effectively implemented in companies with political connections because regulators would protect the blockholders of these companies. In short, political connections can reduce the transparency of corporate information and decrease the cost to executives of breaking the law.…”

Section: Research Hypothesesmentioning

confidence: 99%

Political Connections, Analyst Following, and the Informativeness of Insider Trading in China

Zeng

Yao-zhong

2013

China Account Financ Rev

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Based on the theory of information asymmetry, this paper studies the predictive power of Chinese insider trading on a stock’s future medium- and long-term abnormal returns. The evidence shows that as a whole, Chinese insider trading can predict a stock’s future return in the medium term as well as in the long term, but this predictive ability is affected by factors such as the company’s political connections and analyst following and the ownership nature of its controller. In detail, the insider trading of companies with high-level political connections has significantly higher informativeness than that of non-politically connected companies, but the insider trading of companies with low-level political connections is not informative. Moreover, the effect of high-level political connections on the informativeness of insider trading is related to the ownership nature of the corporate controller. Among high-level politically connected companies, privately controlled companies’ insider trading has significantly higher informativeness than that of state-controlled companies. Analyst following significantly decreases the informativeness of corporate insider trading, but it fails to decrease to a larger extent the informativeness of the insider trading of companies with high-level political connections. This paper makes two main contributions to the literature. First, considering China’s special institutional background, it studies the impact of political connections on corporate insider trading, thereby expanding the perspective of insider trading research worldwide. Second, it is the first time in Chinese research that the positive effect of analyst following on reducing corporate information asymmetry has been tested from the perspective of insider trading, and thus the paper enriches China’s literature on securities analysts. What is more, our findings not only remind investors about the different levels of informativeness among different types of insider trading to help them in obtaining medium- to long-term abnormal returns but also give suggestions to securities market regulators on the types of corporate insider trading that should be monitored more.

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Political Connections and Minority-Shareholder Protection: Evidence from Securities-Market Regulation in China

Cited by 274 publications

References 48 publications

Empirical Research on Corporate Governance in China: A Review and New Directions for the Future

Empirical Research on Corporate Governance in China: A Review and New Directions for the Future

Structural Changes in the Chinese Stock Market: A Review of Empirical Research

Political Connections, Analyst Following, and the Informativeness of Insider Trading in China

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