Corporate Governance in China: Research and Evaluation

CHAPTER 4

Research on Evaluation and Index of Directorates Governance

Evaluation of directorates governance is one of the core factors of the evaluation of corporate governance. On the basis of some conclusions from Chinese and foreign research, we set some correlative indexes of directorates governance for analyzing the relationship between directors' governance and company performance of Chinese listed companies in different aspects. We reach a conclusion that there exists an inverse U-shape relationship between directors' governance and company performance, and find evidence of the existence of a substitution effect among directors' governance mechanisms. The policy implications of this conclusion are in the following conditions of directorates governance. The key to our directorates governance reformation is introducing strategic investors and improving the mechanisms of board committees and internal governance. Problems include lack of external governance mechanisms, weak majority shareholders, insufficient regulations of internal directors, and inadequate incentive effects.

Literature review on evaluation of directorates governance

Directorates governance is at the core of corporate governance. A directorate is the legal entity of corporate property rights, and it executes decision-making functions and evaluation and regulation functions for executives. So an efficient directorate is consistent with the corporate development and benefits of shareholders. Fama (1980) indicated ...