Chinese Companies, Corporate Governance and Listing Standards

One of the topics that we follow on this Blog concerns corporate governance overseas.  Corporate governance standards are often weaker overseas, particularly in developing markets.  That is gradually changing, as foreign exchanges realize the importance of raising standards to attract investors.  It is the improved quality of foreign standards that has been one of the explanations for the reduced growth of foreign listings in the US.  Nonetheless, foreign companies still list in the US because those meeting the governance requirements here obtain a cross-listing premium, that is their share prices go up in their home market. 

The student piece below discusses the development of governance standards for Chinese companies.  The piece notes that some Chinese companies list in the US but in doing so sidestep some governance requirements imposed by the NYSE.  The NYSE generally requires that the board of listed companies have a majority of independent directors and have compensation and nominating committees, with the membership entirely made up of independent directors.  See NYSE Guide 303A.00.  There are, however, exceptions.  The NYSE, for example, exempts corporations with a shareholder (or group) owning 50% of the voting shares from these requirements.   

The student post below references a study done of some Chinese companies listed on the NYSE.  According to the article describing the study, the Chinese companies have weaker corporate governance than US companies, apparently because of this exception.  See Jennifer Hughes and Anuj Gangahar, NYSE Listings Flatter China's Top 10 Groups, FT, Sept. 17, 2007 ("The companies are majority-owned by other entities, so they are exempt from several important US listing requirements, including that they have a majority of independent directors or a corporate governance committee made up of independent directors.").  The Article indicates that the companies are in fact majority owned by the Chinese Government.