Reorganization Of Public Company And Corporate Governance Reform Of State-owned Company

The growth of State-owned Company is mostly hindered by the flaws in corporate governance. This thesis, through a deep case study of Gree Real Estate's reorganization of the public company Seastar Modern Tech Co. Ltd, explains the effectiveness of corporate reorganization as a tool to reform the corporate governance mechanism.The reorganization of public company is an unique method of corporate governance reform in China, especially for state-owned companies, the usual approaches are the whole company go IPO (Initial public offering) or a new company go public via reverse takeover of a public shell company, thus to introduce the corporate governance mechanisms in the operations as a public company. One of the key factors of the governance reform is to clarify the owner-management relations, interests and responsibilities. The reorganization and going public helps a sate-owned company to play by the market rules, and diminish the flaws of no clearly defined boundary between the owner and the state-owned company, so to enhance the corporate governance mechanism and capable of sustaining and healthy growth.The core of corporate governance lies in two aspects, Firstly, to enhance the core value of a company, a management incentive mechanism has to be designed, and the mechanism needs to resolve two basic issues: adverse selection and moral risk, the two issues are mainly directed to the management. By designing the effective incentive mechanism, not only the appropriate and competent management can be selected, also the management can be fully motivated to enhance the value of the corporation.The second aspect is how to coordinate the conflict of interests of different stakeholders within the company. These conflicts are demonstrated via a series of agency problems, the core are the agency problems between the shareholders and management, controlling shareholders and minority shareholders, the corporation and creditors, employees. This thesis believe effective corporate governance will improve efficiency by optimizing capital structure, and to resolve the agency problems of interest confliction by designing a series of mechanisms, among which are shareholder meeting, board of directors, board of supervisors and their responsibilities system design, include the restrictions on the majority shareholder or controlling shareholder, designing the rules and regulations as checks and balances among different stakeholders.This thesis did a deep and detailed case study of the reorganization of the public company Seastar Modern-Tech by Gree Real Estate, with findings that the two primary motives for Gree to go public are finance bottleneck and flaws of corporate governance, and going public by the reverse takeover of Seastar Modern-Tech do improve the corporate governance. In effect, the size of board of directors are increased, and become more independent, different special committees are set up, the top management compensation and incentive plans in correlation with performance is starting to take shape, the company has gained a stable developing environment. As the financial statements indicate, the corporate governance improvements have already brought better financial performance, which also confirm to an extent that going public through reorganization is an effective mechanism to ensure the sustaining and healthy development of the state-owned company.