Journal of Business Ethics

, Volume 134, Issue 4, pp 575–592 | Cite as

Is Corporate Governance in China Related to Performance Persistence?

  • Lars Helge Haß
  • Sofia Johan
  • Denis SchweizerEmail author


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.


Board structure China Corporate governance Performance persistence 



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.


  1. Adams, R. B., & Ferreira, D. (2008). Do directors perform for pay? Journal of Accounting and Economics, 46, 154–171.CrossRefGoogle Scholar
  2. Allen, F., Qian, J., & Meijun, Q. (2012). China’s financial system: Past, present, and future. NBER Working Paper No. 17828.Google Scholar
  3. Altman, E. I. (1968). Financial ratios, discriminant analysis and the prediction of corporate bankruptcy. Journal of Finance, 23, 589–609.CrossRefGoogle Scholar
  4. Andres, C., Cumming, D., Karabiber, T., & Schweizer, D. (2013). Do markets anticipate capital structure decisions? Feedback effects in equity liquidity. Journal of Corporate Finance, 27, 133–156.CrossRefGoogle Scholar
  5. Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economic Studies, 58, 277–297.CrossRefGoogle Scholar
  6. Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-component models. Journal of Econometrics, 68, 29–51.CrossRefGoogle Scholar
  7. Bebchuk, L., Cohen, A., & Wang, C. (2013). Learning and the disappearing association between governance and returns. Journal of Financial Economics, 108, 323–348.CrossRefGoogle Scholar
  8. Bhagat, S., & Black, B. (2002). The non-correlation between board independence and long term firm performance. Journal of Corporation Law, 27, 231–274.Google Scholar
  9. Bhagat, S., Carey, D., & Elson, C. (1999). Director ownership, corporate performance, and management turnover. The Business Lawyer, 54, 885–919.Google Scholar
  10. Bloom, N., Genakos, C., Sadun, R., & Van Reenen, J. (2012). Management practices across firms and countries. Academy of Management Perspectives, 26, 12–32.CrossRefGoogle Scholar
  11. Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87, 115–143.CrossRefGoogle Scholar
  12. Brickley, J. A., Coles, J. L., & Jarrell, G. (1997). Leadership structure: Separating the CEO and chairman of the board. Journal of Corporate Finance, 3, 189–220.CrossRefGoogle Scholar
  13. Chen, J., Ezzamel, M., & Cai, Z. (2011). Managerial power, tournament theory and executive pay in China. Journal of Corporate Finance, 17, 1176–1199.CrossRefGoogle Scholar
  14. Chen, G., Firth, M., Gao, D. N., & Rui, O. M. (2006). Ownership, corporate governance, and fraud: Evidence from China. Journal of Corporate Finance, 12, 424–448.CrossRefGoogle Scholar
  15. Chen, J., Liu, X., & Li, W. (2010). The effect of insider control and global benchmarks on Chinese executive compensation. Corporate Governance an International Review, 18, 107–123.CrossRefGoogle Scholar
  16. Cheung, Y. L., Jiang, P., Limpaphayom, P., & Lu, T. (2010). Corporate governance in China: A step forward. European Financial Management, 16, 94–123.CrossRefGoogle Scholar
  17. Conyon, M. J., & He, L. (2011). Executive compensation and corporate governance in China. Journal of Corporate Finance, 17, 1158–1175.CrossRefGoogle Scholar
  18. Conyon, M. J., & He, L. (2012). CEO compensation and corporate governance in China. Corporate Governance: An International Review, 20, 575–592.CrossRefGoogle Scholar
  19. Conyon, M. J., & He, L. (2013). Executive compensation and corporate fraud in China. Available at SSRN:
  20. Core, J. E., Holthausen, R. W., & Larcker, D. (1999). Corporate governance, chief executive officer compensation, and firm performance. Journal of Financial Economics, 51, 371–406.CrossRefGoogle Scholar
  21. Cronqvist, H., & Fahlenbrach, R. (2009). Large shareholders and corporate policies. Review of Financial Studies, 22, 3941–3976.CrossRefGoogle Scholar
  22. Cumming, D., Dai, N., Haß, L. H., & Schweizer, D. (2012). Regulatory induced performance persistence: Evidence from hedge funds. Journal of Corporate Finance, 18, 1005–1022.CrossRefGoogle Scholar
  23. Cumming, D., Fleming, G., Johan, S., & Takeuchi, M. (2010). Legal protection, corruption and private equity returns in Asia. Journal of Business Ethics, 95, 173–193.CrossRefGoogle Scholar
  24. Diamond, D. W., & Verrecchia, R. E. (1991). Disclosure, liquidity, and the cost of capital. Journal of Finance, 46, 1325–1359.CrossRefGoogle Scholar
  25. Ding, S., Wu, Z., Li, Y., & Jia, C. (2009). Can the Chinese two-tier-board system control the board chair pay? Asian Journal of Finance and Accounting, 1, 1–22.CrossRefGoogle Scholar
  26. Ding, S., Wu, Z., Li, Y., & Jia, C. (2010). Executive compensation, supervisory board, and China’s governance reform: A legal approach perspective. Review of Quantitative Finance and Accounting, 35, 445–471.CrossRefGoogle Scholar
  27. Ding, Y., Zhang, H., & Zhang, J. (2007). Private vs. state ownership and earnings management. Corporate Governance: An International Review, 15, 223–238.CrossRefGoogle Scholar
  28. Epstein, L. G., & Schneider, M. (2008). Ambiguity, information quality and asset pricing. Journal of Finance, 63, 197–228.CrossRefGoogle Scholar
  29. Faccio, M., Masulis, R., & McConnell, J. J. (2006). Political connections and corporate bailouts. Journal of Finance, 61, 2597–2635.CrossRefGoogle Scholar
  30. Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. Journal of Law and Economics, 26, 301–325.CrossRefGoogle Scholar
  31. Fan, J., Rui, O. M., & Zhao, M. (2008). Public governance and corporate finance: Evidence from corruption cases. Journal of Comparative Economics, 36, 343–364.CrossRefGoogle Scholar
  32. Firth, M., Fung, P., & Rui, O. (2007). How ownership and corporate governance influence chief executive pay in China’s listed firms. Journal of Business Research, 60, 776–785.CrossRefGoogle Scholar
  33. Freixas, X., & Rochet, J. (1997). Microeconomics of Banking. Cambridge, MA: The MIT Press.Google Scholar
  34. Gneezy, U., & Rustichini, A. (2000). Pay enough or don’t pay at all. Quarterly Journal of Economics, 115, 791–810.CrossRefGoogle Scholar
  35. Gompers, P., Ishii, J., & Metrick, A. (2003). Corporate governance and equity prices. Quarterly Journal of Economics, 118, 107–155.CrossRefGoogle Scholar
  36. Graham, John. R., Li, S., & Qiu, J. (2008). Corporate misreporting and bank loan contracting. Journal of Financial Economics, 89, 44–61.CrossRefGoogle Scholar
  37. Hermalin, B. E., & Weisbach, M. S. (1998a). Endogenously chosen boards of directors and their monitoring of the CEO. American Economic Review, 88, 96–118.Google Scholar
  38. Hermalin, B. E., & Weisbach, M. S. (1998b). The determinants of board composition. Rand Journal of Economics, 19, 589–606.CrossRefGoogle Scholar
  39. Hermalin, B., & Weisbach, M. (2003). Boards of directors as an endogenously determined institution: A survey of the economic evidence. Economic Policy Review, 9, 7–26.Google Scholar
  40. Hou, W., & Moore, G. (2010). Player and referee roles held jointly: The effect of state ownership on China’s regulatory enforcement against fraud. Journal of Business Ethics, 95, 317–335.CrossRefGoogle Scholar
  41. Jensen, M. C. (1993). The modern industrial revolution, exit, and the failure of internal control systems. Journal of Finance, 48, 831–880.CrossRefGoogle Scholar
  42. Jensen, M. C., & Meckling, W. H. (1976). Theory of firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3, 305–360.CrossRefGoogle Scholar
  43. Jensen, M. C., & Warner, J. B. (1988). The distribution of power among corporate managers, shareholders, and directors. Journal of Financial Economics, 20, 3–24.CrossRefGoogle Scholar
  44. Jia, C., Ding, S., Li, Y., & Wu, Z. (2009). Fraud, enforcement action, and the role of corporate governance: Evidence from China. Journal of Business Ethics, 90, 561–576.CrossRefGoogle Scholar
  45. Johnson, S., La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (2000). Tunneling. American Economic Review Papers and Proceedings, 90, 22–27.CrossRefGoogle Scholar
  46. Kato, T. K., & Long, C. X. (2006). Executive compensation, firm performance, and corporate governance in China: evidence from firms listed in the Shanghai and Shenzhen Stock Exchanges. Economic Development and Cultural Change, 54, 945–983.CrossRefGoogle Scholar
  47. La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (2000). Investor protection and corporate governance. Journal of Financial Economics, 58, 3–27.CrossRefGoogle Scholar
  48. Ma, J., & Khanna, T. (2013). Independent directors’ dissent on boards: Evidence from listed companies in China. Working Paper.Google Scholar
  49. Millar, C., Eldomiaty, T., Chong Ju, C., & Hilton, B. (2005). Corporate governance and institutional transparency in emerging markets. Journal of Business Ethics, 59, 163–174.CrossRefGoogle Scholar
  50. Peng, M., Li, Y., Xie, Y., & Xu, W. (2010). CEO duality, organizational slack and firm performance in China. Asia Pacific Journal of Management, 27, 611–624.CrossRefGoogle Scholar
  51. Pitelis, C. N. (2013). Towards a more ‘ethically correct’ governance for economic sustainability. Journal of Business Ethics, 118, 655–665.CrossRefGoogle Scholar
  52. Shivdasani, A. (1993). Board composition, ownership structure, and hostile takeovers. Journal of Accounting and Economics, 16, 167–198.CrossRefGoogle Scholar
  53. Shleifer, A., & Vishny, R. W. (1986). Large shareholders and corporate control. Journal of Political Economy, 94, 461–488.CrossRefGoogle Scholar
  54. Tam, O. K. (2002). Ethical issues in the evolution of corporate governance in China. Journal of Business Ethics, 37, 303–320.CrossRefGoogle Scholar
  55. The Central Government Portal. (2013).
  56. Vafeas, N. (1999). Board meeting frequency and firm performance. Journal of Financial Economics, 53, 113–142.CrossRefGoogle Scholar
  57. Wang, K., & Xiao, X. (2011). Controlling shareholders’ tunneling and executive compensation: Evidence from China. Journal of Accounting and Public Policy, 30, 89–100.CrossRefGoogle Scholar
  58. Wassener, B., & Buckley, C. (2013). New Chinese agency to increase financial coordination. The New York Times (August 21, 2013), B7.Google Scholar
  59. Weisbach, M. (1988). Outside directors and CEO turnover. Journal of Financial Economics, 20, 431–460.CrossRefGoogle Scholar
  60. Xi, C. (2006). In search of an effective monitoring board model: Board reforms and the political economy of corporate law in China. Connecticut Journal of International Law, 22, 1–46.Google Scholar
  61. Yermack, D. (1996). Higher market valuation of companies with a small board of directors. Journal of Financial Economics, 40, 185–211.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media Dordrecht 2014

Authors and Affiliations

  • Lars Helge Haß
    • 1
  • Sofia Johan
    • 2
    • 4
  • Denis Schweizer
    • 3
    • 5
    Email author
  1. 1.Lancaster University Management SchoolLancaster UniversityLancasterUK
  2. 2.York University—Schulich School of BusinessTorontoCanada
  3. 3.Concordia UniversityMontrealCanada
  4. 4.Tilburg Law and Economics CenterTilburgThe Netherlands
  5. 5.WHU—Otto Beisheim School of ManagementVallendarGermany

Personalised recommendations