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Is Corporate Governance in China Related to Performance Persistence?

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Abstract

This paper examines the relationship between performance persistence and corporate governance (as proxied for by board characteristics and shareholder structure). We document systematic differences in performance persistence across listed companies in China during 2001–2011, and empirically demonstrate that firms with better corporate governance show higher performance persistence. The results are robust over both the short and long terms. We also find that performance persistence is an important factor in refinancing, and it can lower companies’ costs of borrowing. Overall, our findings offer important implications for business ethics, as we demonstrate how corporate governance can lower companies’ costs of debt.

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Notes

  1. The 1993 Corporate Law in China has been amended three times (in 1999, 2004, and 2005), strengthening supervisory board functions, such as monitoring, each time. It is scheduled to be amended again in 2014 (see Ding et al. 2010, for more details). To accommodate these changes, we include fixed effects by year in the multivariate regressions.

  2. We exclude firms with negative book equity and firms with industry code 0001 (financial firms).

  3. Note that, by including year fixed effects in our regressions, we implicitly control for changes in the risk-free rate.

  4. The tables are available from the authors upon request.

  5. These tables are also available from the authors upon request.

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Acknowledgments

The authors are grateful to an anonymous referee for their many helpful comments, and the special issue editors Douglas Cumming, Wenxuan Hou, and Edward Lee for very useful suggestions. The authors gratefully acknowledge valuable feedback from the participants at the Conference on Sustainable and Ethical Entrepreneurship, Corporate Finance and Governance, and Institutional Reform in China. Helpful comments were further provided by Martin Conyon, Joseph P.H. Fan, Kenneth Kim, and Juliane Proelss.

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Authors and Affiliations

  1. Lancaster University Management School, Lancaster University, Lancaster, LA1 4YX, UK

    Lars Helge Haß

  2. York University—Schulich School of Business, 4700 Keele Street, Toronto, ON, M3J 1P3, Canada

    Sofia Johan

  3. Concordia University, 1455 de Maisonneuve Boulevard West, Montreal, QC, H3G 1M8, Canada

    Denis Schweizer

  4. Tilburg Law and Economics Center, Tilburg, The Netherlands

    Sofia Johan

  5. WHU—Otto Beisheim School of Management, Vallendar, Germany

    Denis Schweizer

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  1. Lars Helge Haß
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  2. Sofia Johan
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Correspondence to Denis Schweizer.

Appendix 1

Appendix 1

See Table 9.

Table 9 Variable definitions
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Haß, L.H., Johan, S. & Schweizer, D. Is Corporate Governance in China Related to Performance Persistence?. J Bus Ethics 134, 575–592 (2016). https://doi.org/10.1007/s10551-014-2385-3

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