Tong, Junarsin & Davidson: A Comparison of Chinese State-Owned Enterprise Firm’s Boards and Private Firm’s Boards


Using 3,019 listed firms in China divided into two subsamples, we compare the characteristics of corporate governance between private firms and State Owned Enterprise (SOE)firms after they have gone public on the Chinese stock markets. We examine the differences in board structure between these two types of firms. Results show that private firms and SOE firms havedifferent governance characteristics. SOE firms have larger boards, meet less often, have a smaller proportion of independent directors on the board, have lower managerial ownership, have olderdirectors, and have directors with a higher educational level of directors than do private firms. SOE firms also appoint more independent directors from academia, and their Chairpersons are less likely to be the CEOs. For private firms, hiring independent directors from academia hurts the firm’s financial performance while the appointment of independent directors from academia does not harm the SOE firm’s performance. Meanwhile, hiring independent directors who have accounting skills is beneficial to an SOE firm’s performance whereas for a private firm, its financial performance is unaffected even when it hires independent directors with accounting skills. Our analysis indicates that in China, although private firms and SOE firms have theoretically become public firms, the SOE firms are relatively superior to the private firms in corporate governance efficiency, especially in appointing high-caliber independent directors.

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