Bad debts, ownership concentration, and board composition: Evidence on the quality of corporate governance outcomes in China's listed non financial companies

Abstract

This study analyses the relationships between performance metrics and the corporate control and governance characteristics of a sample of China's listed non financial companies in order to assess the influence of corporate governance structures on the quality and independence of corporate decision making. We use a panel data set covering the years 2001 to 2005 comprised of a stratified sample of A, AB and AH non financial companies listed on China's Shanghai and Shenzhen stock exchanges. We find that concentration of ownership, including state and foreign ownership, and board size and independence are significant factors in determining performance outcomes, and by association the quality and independence of corporate policy decisions, as measured in the form of firm bad debt to total asset and bad debt to receivables ratios. Our findings support claims of continued inadequacies in the operation and effectiveness of China's institutions of corporate governance, especially with respect to the effectiveness of the supervisory board.