Embed Size (px)
Citation preview
Law, Corporate Governance, and Corporate Scandal in China
Yi ZhangPeking University
International Conference on Corporate Governance
Shanghai March 2005
I. Introduction• It has been over ten years since stock markets establis
hed in China. China stocks market has been playing a role .
• there exist so many listed firms committed fraud and scandal
• Since 1992, about 200 listed firms among 1200 have been subject to security enforcement action by China Securities Regulation Commission (CSRC), Shenzhen Stock Exchange (SZSE) and Shanghai Stock Exchange (SSE).
• The ratio of firms with scandal is far above the level of other countries
Motivation
• What contributes to firm’s scandal?
• Does corporate governance matter in China?
Is there a sound corporate governance mechanism could prevent scandal?
• Does legal and economic development matter?
- Is there a difference between firms in regions with various legal effectiveness?
- economic development?
II. Issues and Hypothesis:
-Corporate governance
-legal
-economic
-finance
1. Corporate Governance
1.1. ownership
• One of the most essential feature of the ownership of Chinese listed firms is the dominance of the largest shareholder
• There has no effective mechanism to monitor and restrict the large shareholders
• The large shareholder can expropriate the minority shareholders for private benefit
1. Corporate Governance
1.1. ownership
• Jensen(1976)• Stulz (1988)
• H1A: As the ownership of the largest shareholder increases from zero, a firm is more likely to be associated with scandal
• Entrenchment of large shareholders• Expropriation by large shareholder
• La Porta, Lopez-De-Silanes, Shleifer (1999)• La Porta, Lopez-De-Silanes, Shleifer (2002)• Claessens, Djankov, Fan, and Lang (2002)• Fan and Wong (2002)
• H1B: As the ownership of the largest shareholder increases over certain level, a firm is more likely to be associated with scandal
1.2 Firm Controller
• There is fundamental difference between state and non-state shareholders
• There is huge difference among state shareholders in internal monitoring, etc.
-central government (bu/wei, 中央部委）和 -non-central government ( 非部委）
• Li and Zhang （ 2005 ）• Li and Zhang （ 2004 ）• Lin and Zhang （ 2004 ）
1.2 Firm Controller
-central government (bu/wei, 中央部委）和 -non-central government ( 非部委）• central government controlled• local government controlled• local State Enterprises (SOE) controlled• Non-state legal person controlled• Natural person• others
1.2 Firm Controller• Central government controlled firms are associated with
clearer ownership, ( a little) more transparency, more monitoring
• more social responsibility ，(maybe) better protection of minority shareholders
Non-central SOE and non-state legal person controlled firms are associated with less transparency and lack of monitoringup to less social responsibilitylack of protection of minority shareholders
• H2: Firms controlled by central(/local) government are less likely to be associated with scandal
1. Corporate Governance
1.3 Board• Fama and Jensen (1983) theorize that the board of directors
is the highest internal control mechanism responsible for monitoring the actions of top management.
-the composition of individuals who serve on the board of directors is an important factor in creating a board that is an effective monitor of management actions
Fama’s (1980) and Fama and Jensen’s (1983) theory would predict that higher percentages of independent directors
increase the board’s effectiveness as a monitor of management.
• Jensen (1993) argues that boards of director are ineffective monitors when the board is too large, when the board’s equity ownership is small, and when the CEO is also the Chairman of the Board.
• composition of the board of directors determines its effectivenessDeFond and Jiambalvo (1991)Beasley (1996)Dechow, Sloan and Sweeney (1996), etc.
Board composition and disclosureChen and Jaggi （ 2000 ）
• The board size
• H3A: Firm with a larger board size is more likely to be associated with scandal
• The board-management relationship
• The CEO/Chairman
• H3B: Firm with a separate CEO and Chairman is less likely to be associated with scandal
• Independent directors• Independent directors, compared with inside directors, are
less likely to collude with management
• H3C: Firms with lower proportion (seats) of independent director on the board of directors are more likely to be associated with scandal
• Director holdings
• H3D: Firms with a higher ratio(number) of directors hold firm stock are less likely to be associated with scandal
• Chairman Holding
• H3E: Firms with higher Chairman stock holding are less likely to be associated with scandal
• Director Compensation
• H3F: Firm with higher ratio(number) of director paid are less likely to be associated with scandal
1.4 Supervisory Committee (Board of Supervisors-监事会 )
• Supervisory Committee size
• H4A: Firms with a larger Supervisory Committee size is more(less?) likely to be associated with scandal
1.4 Supervisory Committee (Board of Supervisors-监事会 )
• Supervisory Committee member holdings
• H4B: Firms with a higher ratio(number) of supervisors hold firm stock is less likely to be associated with scandal
• Supervisory Committee member Compensation
• H4C: Firm with higher ratio (number) of Supervisory Committee member paid is less (or more?) likely to be associated with scandal
4 ． Institution investors
• 机构投资者能够降低公司内部的代理成本，减少公司管理层的不良行为Jarrell and Poulsen (1987)
Brickley, Lease, and Smith (1988)
机构投资者更倾向于反对减少股东财富的行为
• 机构投资者相比其他类型的投资者而言更需要透明度和信息的披露Healy et al. (1999)
Bushee 和 Noe (2000)
机构投资者更偏好购买那些持续披露信息的公司的股票
• 长期持有公司股票的机构投资者，很可能出于自身的利益而合谋进行不法行为
• 机构投资者可以从中得到的益处财务性的收益，如低于市价的转让价格，阻止封闭式基金的赎回以及承销、财务顾问方面的合同（ Barclay, Holderness, 和 Pontiff (1993) ）
非财务性的收益，如影响公司在政治、经济或社会方面的政策
就我国的实际情况而言，基金、证券等机构重仓持有上市公司的股票，利用内部信息进行炒作、牟取暴利已不是秘密
因此，在我国机构投资者的持股比例同公司违规行为是正相关还是负相关或不相关需要实证检验。
• H4 ： Institution holdings are related to the likelihood for firm to commit scandal
Financial distress
• Firms confronting with financial distress are more likely to commit financial statement fraud
• Need control for financials
3. Economic development
Firms in more economy developed region are less likely to be associated with scandal
4.Law
Written lawLLSV (1998)Allen, Qian, Qian (JFE,forthcoming)
Effectiveness of law is more important than the written law in a transition economy
Berkowitz et al (2003)Alford (2000)Lu and Yao (2004)
China’s provinces significantly differs in terms of legal development.
Whether law effectiveness in the region affects firm’s decision to commit fraud?
Maybe law does not matter since law is not effective over all in China?
四、实证研究方法 （ i ）变量 • SCANDAL ，公司是否被监管机构认定为违规并公
开批评 , 谴责或处罚控制变量• DEBT ：公司的资产负债率• ROA ：公司的资产收益率 • LIQUIDITY ：公司的流动比率
2 ．实证回归模型
Matching scandal firms with non-scandal firms
Logistic regressionExamine firm’s propensity to commit scandal
SCANDAL=f(β0+β1GOVERN+β2INSTITUTE+β3BOARD+β4FSIZE+β5DEBT+β6ROA +β7LIQUIDITY+ （ Other Controls ） ) （ 1 ）
五、样本与数据 • （一）数据
In order to identify firms that commit scandal, we refer to the China Securities Journal, Shanghai Securities Journal and the Guotaian Dataset for financial scandals.
The total number of firms subject to enforcement actions by the CEC, SSE, and SZSE between 1993 and 2003 is 178.
We eliminate 12 firms whose governance information in and before the fraud period are not available, 2 firms listed on B-Stock Market of China, and 4 firms that cannot be matched by industry code, and then the sample size is reduced to 160
• 虚构利润• 虚列资产• 虚假陈述• 重大遗漏• 擅自改变资金用途• 大股东占用资产• 违规担保
五、样本与数据 • Each of the scandal firm is matched with a no-scandal firm, creati
ng a choice-based sample of 160 scandal and 160 no-scandal firms. The control firm is obtained by the following four-step process:(i) Stock Exchange (ii) Industry. 3-digit industrial code. If ther
e’s no firm matching the three digits, then select that of the same primary two digits (iii) Firm Size.
53 of 160 committed scandal in a period lasting 2 or more accounting years, and we define the fraud period of these firms as the first date of their financial statement fraud
When firms committed scandal and was denounced/criticized/punished more than once, we only record the first time
Sample description
Fst Yr of Fraud Cases Fst Yr of Fraud Cases 1993 1 1999 6 1994 6 2000 29 1995 3 2001 44 1996 31 2002 12 1997 13 2003 6 1998 9 Total 160
logistic 回归分析(1) Governance and financials
(2) Add marketization index
(3) Proxy for economics development
(4) Proxy for legal development
(5) Proxy for financial development
Corporate GovernanceOwnership
• LARGEST 回归系数为负 , 在 5%水平上显著 ,LARGESTSQ 的回归系数为正，在 10%水平上显著
• 第一大股东持股比例从零开始增大 , 公司越不会 commit scandal;
• 当第一大股东持股比例达到一定水平 , 持股比例越高 ,公司越可能 commit scandal;
• LOCAL 和 LEGALP 的回归系数为正， LOCAL 在 5%水平上显著， LEGALP 在 0.1%水平上显著非国有法人和地方政府控制的公司更有可能违规
董事会
• BOARDSIZE, INDEPENDENT均不显著董事会规模和独立董事席位（比例）
• CHAIRCEO 不显著CEO 是否兼任董事
• 持股董事人数（比例）和付报酬董事人数（比例）均不显著
• CHAIRHOLDING为负，在 10％水平上显著• 董事长持股比例越高，公司越不会 commit scandal
监事会
• 监事会规模不显著
• 持股监事人数（比例）不显著
• 付报酬监事比例显著为正 (10% 水平 )取得报酬的监事比例越高，公司越可能 commit scandal
机构投资者
• 机构投资者持股比例不显著
分拆上市或整体上市
• 分拆上市或整体上市没有显著影响
Controls
• 流动比率的回归系数显著为负流动比率越高的公司， financial distress 的可能较小 , 违规可能较小
• DEBT 的回归系数为正，但统计上不显著
• ROA 的回归系数显著为负资产收益率较高的公司违规可能较小
Region development
• Northeast显著为正 , 公司发生丑闻的可能性较高
• midyangtz显著为正 , 公司发生丑闻的可能性较高
Economic development
• lgdppc ，该省人均GDP对数值为负，并在统计上显著经济越发达，公司发生丑闻的可能性越小
Legal development
• Measure of legal effectiveness
• 检察院 (procuratorial system)
• ProcuratorialCases_per_capita: 立案经济案件• ProcuratorialCases_gdp
• Loss_to_GDP: The ratio of saved loss by procuratorial suits to local GDP
• Cadre_In_procurate: This measures the corruptness of officials. The number of cadres at county level or above (县处级以上 )involved in procuratate divided by the population
Legal development
• 法院 (court system)
• Case_Close_Rate • RCMP: The number of commercial cases received by the cour
t per million of population
• 律师协会 (lawyer association)• Lawyer_per_capita
• Lawyer_GDP_Ratio
Legal development
• ProcuratorialCases_per_capita
ProcuratorialCases_gdp
• Show positive relationship to propensity to commit scandal
• ?
Measures the extent of illegal activity, but not the law effectiveness when the effectiveness of procuratorial system is extremely low
Legal development
• RCMP 显著为正 , RCMP平方显著为负• Two different sceneries• When the law effectiveness is extremely low• When law becomes effective (e.g.Shanghai)
Better legal environment
Financial development
• Measurement
• Private_Invest: Obtained by subtracting the fixed-asset investment made by SOEs and collective firms from the total amount of fixed-asset investment in a province
• FIN_Competition: Subtracting the credit issued by the four major state banks from the total amount of credit, we get the credit issued by local financial institutions. The proportion of credit issued by local financial institutions to the total amount of credit can serve as a measure of financial competition.
------------------------------------------------------------------------------
fraud | Coef. Std. Err. z P>|z| [95% Conf. Interval]
-------------+----------------------------------------------------------------
local | .6353143 .2946736 2.16 0.031 .0577647 1.212864
legalp | 1.541464 .4495792 3.43 0.001 .6603051 2.422623
dchaceo | -.3738875 .2928697 -1.28 0.202 -.9479015 .2001264
independ | -.0575306 .1897448 -0.30 0.762 -.4294237 .3143624
dirholdr | .1251317 .4399344 0.28 0.776 -.7371238 .9873872
inspaidr | .7274129 .3544832 2.05 0.040 .0326386 1.422187
chairhol | -16.63703 8.465097 -1.97 0.049 -33.22831 -.0457411
largest | -5.993183 3.024697 -1.98 0.048 -11.92148 -.0648864
largesq | 6.018313 3.263208 1.84 0.065 -.3774568 12.41408
group | .254726 .273278 0.93 0.351 -.280889 .790341
liquidit | -.160874 .0956442 -1.68 0.093 -.3483332 .0265851
debtequi | .0473211 .0536914 0.88 0.378 -.0579121 .1525543
roa | -2.718458 1.713618 -1.59 0.113 -6.077087 .6401706
lgdppc | -.50695 .2979299 -1.70 0.089 -1.090882 .0769818
procupc | 2.025771 1.748437 1.16 0.247 -1.401103 5.452645
rcmp | .1524383 .0693843 2.20 0.028 .0164476 .288429
rcmpsq | -.0037902 .0018256 -2.08 0.038 -.0073683 -.0002121
_cons | -.8620786 .9755038 -0.88 0.377 -2.774031 1.049874
------------------------------------------------------------------------------
六、结论 • 公司治理结构对公司发生丑闻的可能性有显著影
响• 财务状况对公司发生丑闻的可能性有显著影响• 公司所在地区的经济发展水平与公司发生丑闻的
可能性负相关• 所在地区的法制发展与公司发生丑闻的可能性相
关
