The Role of the 2003 Corporate Governance Reform in China on Major Corporate Activities
Creators: name: BI, YIFEI
Publisher: name: University of Surrey
Year: 2023

description: In 2001, the China Securities Regulatory Commission (CSRC) started a corporate governance reform aimed at improving the governance of Chinese listed companies. This reform required that by June 30th, 2003, listed firms should have at least one-third of independent directors on their boards. This thesis consists of three papers examining the effects of the corporate governance reform in 2003 on three typical corporate activities, including CEO turnovers, mergers and acquisitions (M&amp;As), and dividend payout policy of Chinese listed firms. <br>
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description: The first paper investigates the relationship between CEO turnover and corporate performance in the pre- and post-reform periods. We classify the entire sample of Chinese listed firms into two groups: the always-in-compliance group, which includes the firms that were always in compliance with the corporate governance reform in the period 1999 to 2007, and the adopted group, which includes the firms that adopted the requirements of the reform from July 1st, 2003, onwards. The findings of this paper show that the relationship between CEO turnover and firm performance, using both accounting performance (IAROA) and stock returns (IASR), is negative for the entire periods, covering the pre- and post-reform periods. The relationship between CEO turnover and corporate performance is stronger in the post-reform period for the sample of adopted firms relative to those listed firms that always had already adopted the reform. Specifically, independent directors have strengthened the relationship between CEO turnover and firm performance. The CEO turnover is positively associated with the proportion of independent directors; the relationship is stronger in the post-reform period. In addition, the findings show that the positive effect of the proportion of independent directors is mainly concentrated on state-owned enterprises (SOEs) relative to the non-state-owned enterprises (non-SOEs) in the post-reform period.<br>
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description: The second paper explores the effect of the reform on acquirer returns. Specifically, this paper examines the relationship between the proportion of independent directors and acquirer returns. The findings of this paper show a positive relationship between the proportion of independent directors and acquirers’ abnormal returns. Acquirers’ abnormal returns in the adopted group are higher in the post-reform period relative to those in the pre-reform period. In addition, acquirers’ abnormal returns are higher in the SOEs than the non-SOEs in the adopted group. Furthermore, the operating performance for acquiring adopted firms is improved in the post-reform period relative to the pre-reform period.
description: The third paper examines the association between the proportion of independent directors and the dividend payout ratio around the reform period. The findings of this paper show a significant decrease in the dividend payout ratio of adopted firms following the associated corporate governance reform, regarding the presence of independent directors on corporate boards. The results show a negative relationship between the proportion of independent directors and the dividend payout ratio for the adopted and always-in-compliance groups. In addition, the relationship between the proportion of independent directors and the dividend payout ratio is stronger in the post-reform period for the adopted group firms relative to the corresponding one for the always-in-compliance group. Furthermore, the findings show that SOEs with a larger proportion of independent directors are associated with lower dividend payout ratios relative to non-SOEs in the post-reform period. These findings imply that the proportion of independent directors can mitigate agency problems and limit the exploitation of minority shareholders from controlling shareholders in the post-reform, especially for SOEs acquirers.<br>