In China, the internal governance can be characterized as three elements: board of director, ownership and control, and managerial incentives. In China, there is a proof that outsider director on the board has a positive impact on increasing the return of investment. Having outsider director on the board leads to make a better decision. There are two kinds of board in china: director and supervisory boards. However, supervisory board is unable to monitor the daily operation in Chinese companies because it doesn’t have the power to do that. Unlike in the US, there are independent boards; majority of independent director on board, directors chairs the nomination, remuneration, and audit committees under the board.
The ownership in China mostly is government or financial institutions as reported before. As a result of that government controls most companies in China when they can use politicians’ connection to control both the market and the firm. However, in well-regulated countries politicians cannot control the firms. In China, family ownership leads to poor performance and reflects conflicts with other shareholders. On the other hand, family ownership in well-regulated market as in the US leads to better performance as a result of reducing the agency cost. The managerial incentives in developed countries are salary, bonuses, perquisites and stock-based incentives. There is a positive relationship between the performance and the compensation that managers receive in the US and stock options becoming the favorite compensation in the US. On the other hand, in China the managers compensations determined by the director board which in general are salary and performance bonus. However, there is no rule or system to determine this bonus which raised complex and make this bonus worth nothing related to the performance, but Chinese company try to solve this problem by making some formula and approach to determine the bonus. In addition, only few firms give stock option to the managers unlike in the US model where stock options become more popular. Also, in China there is a significant relationship between the top executives’ compensation with the sales growth rate and the shareholders’ value. Because firm with foreign shareholders tend to have best managers, managers have paid more than firm that controlled by the government. The external governance has three elements: external market, legal system, and financial system. The external market and takeover activities are important rules in much governance around the world but not in China. The Chinese company is not allowed to merge or acquire. In the US model, the acquisition and mergers are popular especially taking over small firm or poor performance firm. In China, the governance allows the foreign firm to acquire only 10% of the tradable …show more content…
Until 1978, China only has one financial institution, the People’s Bank of China (PBOC). After changing some policies, many banks were established such as the Industrial and Commercial Bank of China (ICBC), the Agricultural Bank of China (ABC), the Bank of China (BOC). Unlike other models Japan and German, banks sector in China play important role in corporate governance. Most of Chinese commercial banks owned by the government, these banks have huge number of nonperforming loans which is a result of poor loan decision and reducing the nonperforming loans for the other banks. Moreover, the Shanghai and Shenzhen stock exchanges were established to make foreign be able to trade in Chinese listed
The ownership in China mostly is government or financial institutions as reported before. As a result of that government controls most companies in China when they can use politicians’ connection to control both the market and the firm. However, in well-regulated countries politicians cannot control the firms. In China, family ownership leads to poor performance and reflects conflicts with other shareholders. On the other hand, family ownership in well-regulated market as in the US leads to better performance as a result of reducing the agency cost. The managerial incentives in developed countries are salary, bonuses, perquisites and stock-based incentives. There is a positive relationship between the performance and the compensation that managers receive in the US and stock options becoming the favorite compensation in the US. On the other hand, in China the managers compensations determined by the director board which in general are salary and performance bonus. However, there is no rule or system to determine this bonus which raised complex and make this bonus worth nothing related to the performance, but Chinese company try to solve this problem by making some formula and approach to determine the bonus. In addition, only few firms give stock option to the managers unlike in the US model where stock options become more popular. Also, in China there is a significant relationship between the top executives’ compensation with the sales growth rate and the shareholders’ value. Because firm with foreign shareholders tend to have best managers, managers have paid more than firm that controlled by the government. The external governance has three elements: external market, legal system, and financial system. The external market and takeover activities are important rules in much governance around the world but not in China. The Chinese company is not allowed to merge or acquire. In the US model, the acquisition and mergers are popular especially taking over small firm or poor performance firm. In China, the governance allows the foreign firm to acquire only 10% of the tradable …show more content…
Until 1978, China only has one financial institution, the People’s Bank of China (PBOC). After changing some policies, many banks were established such as the Industrial and Commercial Bank of China (ICBC), the Agricultural Bank of China (ABC), the Bank of China (BOC). Unlike other models Japan and German, banks sector in China play important role in corporate governance. Most of Chinese commercial banks owned by the government, these banks have huge number of nonperforming loans which is a result of poor loan decision and reducing the nonperforming loans for the other banks. Moreover, the Shanghai and Shenzhen stock exchanges were established to make foreign be able to trade in Chinese listed