Research On Assessment Of Effectiveness Of Corporate Governance In Chinese Listed Companies

With the gradual research of Corporate Governance issue from the theory world and practice, studies on Corporate Governance are now on the stage of Assessment of Corporate Governance system, quantitativing research, after processing the research of the Key Element and of the Structure of Corporate Governance.Constructing scientific, effective system of indicators of corporate governance has its important effects, which will benefit to protect stakeholders'interests, to strengthen government to supervise listed firms, to form Prestige restriction mechanism, to enhance securities market development. The current grading system of Corporate Governance is apt to assessing Corporate Governance construction, operating procedure and essential rules or regulations, which serves as the goal of monitoring and regulations'perfection as possible. The current assessment cannot reflect the effetiveness of corporate governance. Governing risk in China mainly originates from moral hazard; firms with the higher score of Corporate Governance often lead to governing risk. The research report that Chinese Academy of Social Sciences said that the score of corporate governance is not obviously related with the company's performance also indicates that there maybe exist some problems in current procedure and method or in assessment of corporate governance system.Assessment of effectiveness of corporate governance based on firm's oriented value and the largest shareholder's oriented benefit is a new idea and a new research method on quantitativing research of corporate governance and it can partly dabate some deficiency of the current grading system.Studies of assessment of effectiveness of corporate governance based on firm's oriented value and the largest shareholder's oriented benefit has its important sense in theory and pratice: firstly, it enhances people understanding on definition of effectiveness of corporate governance, definites oriented theory from the rating of corporate governance structure to assessment of effectiveness of corporate governance, definites the theory of system of indicators of assessment of effectiveness of corporate governance, which makes relevant literature rich. Secondly, supervision can strengthen its power on firms that their assessment value are lower than critical value and make it feasible to protect small & middle stockholders'benefits, to form Prestige restriction mechanism, to securities market development and to enhance securities market development. Small & middle stockholders may shun firms that would be ineffective in corporate governance and woule invade their benefit. This may realize reasonable allocationon social resources. Firms of ineffectiveness of corporate governance will be forced to improve their corporate governce structure because of restrict supervision and initiative shun of small & middle stockholdersThis paper's research mentality is: taking firm's oriented value and the largest shareholder's oriented benefit as the assessment basis, constructing system of indicators and model of assessment of effectiveness of corporate governance after analyzing and appraising the past literature, defining the critical value of ineffectiveness of corporate governance by further positive test, grouping the listed firms according to the critical value standard and describing the common characteristics of ineffectiveness of corporate governance clearly.In the research process, the paper uses the comparative analysis; normal analysis, positive analysis, multivariate linear regression analysis, and so on.Part 1 is on introductions. It mainly introduces research background, research value, research method, research innovations, its structure and arrangement.Part 2 is on literature review. This part gives literature summary from the research of the Key Element and of the Structure of corporate governance and of Assessment of corporate governance system to the stage of effectiveness of corporate governance, emphasizes to introduce the typical corporate governance assessment system of the home and abroad, such as corporate governance rating of Standard & Poors, of CLSA Credit Lyonnais Securities in Asia, of Fujen Catholic University of 2002, of CCGINK of Nankai University of 2003 and so on, summarizes the literature deficiency.Part 3 is on the basis of assessment of effectiveness of corporate governance. This part gives the assumption of effectiveness of corporate governance by analyzing corporate governance performance and corporate governance premium, governance efficiency , effectiveness of corporate governance and provides the theory basis for assessment, such as principle-agent theory, the game theory, systematic theory and modern theory of the firm and the practice basis, such as the OECD principle, the World Bank's governance framework and governance criterion of Chinese listed companies. Part 4 is on dimension and system of indicators of assessment of effectiveness of corporate governance. It preliminarily designs 7 dimensions: governance of the largest shareholder, governance of the board of directors, governance of the the board of supervisors, governance of the CEO, governance of stakeholders, governance of the financial information disclosre and governance of the law basis and small & middle investors'protection and 26 indicators based on firms'oriented value and the largest shareholder's oriented benefit, judges the relationship between system of indicators and firm's performance.Part 5 is on amendment of system of indicators of assessment of effectiveness of corporate governance. It selects sample firms of ineffectiveness of corporate governance, such as the firms marked ST, ones that are circulated by China Securities Regulatory Commission for their issues and ones are discolsed by the medium, calculates the assessment value of the two sample firms, tests the assessment value's significant difference by T-test method of Eviews3.1 and Excell repeadedly, defines 5 dimension: governance of the largest shareholder, governance of the board of directors, governance of the CEO, governance of the financial information disclosre and governance of the law basis and small & middle investors'protection and 15 system of indicators of assessment of effectiveness of corporate governance.Part 6 is on positive analysis of the model of assessment of effectiveness of corporate governance. It defines the weight of assessment dimension, constructs the model of assessment of effectiveness of corporate governance, calculates the average value of system of indicators of ineffectiveness of corporate governance companies, defines the critical value of ineffectiveness of corporate governance by the above average value and experts advices, describes the characteristics of ineffectiveness of corporate governance through descriptive statistics. It lists main findings on the characteristics of ineffectiveness of corporate governance, which lies in: For governance of the largest shareholder: serious extra control; existing extra related party transactions between the largest shareholder and listed firms; The largest shareholder gets involved in securities and causes serious equity agent issues; serious extra guarantee; the lower proportion of the largest shareholder; the lower proportion of the second to tenth shareholders.For governance of the board of directors: The largest shareholder abosolutely controls the board of directors and the board of supervisors; so many ineffective meetings of the board of directors. For governance of the CEO: the CEO and chairman duties are centralized seriously and the largest shareholder takes part in operating activies. For governance of the financial information disclosre: serious lack of sincerity in listed firms. For governance of the law basis and small & middle investors'protection: fewer firms are listed in other securires markets abroad.Part 7 is on research conclusions and limitations. The main research of the paper are:(1)definiting effectiveness of corporate governance, (2)definiting the basis of assessment of effectiveness of corporate governance, (3)selecting system of indicators of assessment of effectiveness of corporate governance, (4)calculating and defining the critical value of ineffectiveness of corporate governance, (5)describing the characteristics of ineffectiveness of corporate governance. Because the paper uses the public data of listed firms to make research and uses t-test, which considered scientific aspect in theory and methods on the hand and it maybe neglect the pratice of corporate governance. Further studies of the paper lies in: performance index selection, grouping based on critical value, research method selection, adjustment in index-score and critical value calculation when policies on capital market are changed, comparative research on ineffectiveness of corporate governancebefore and after reforming of stockholders structure.The key innovations embodys in: (1) defining firm's oriented value and the largest shareholder's oriented benefit as assessing basis, (2) constructing system of indicators and model of assessment of effectiveness of corporate governance, (3) defining the critical value of ineffectiveness of corporate governance, (4) screening and amending system of indicators by T-test.