Corporate governance of Chinese fund management companies

Yu, P 2013, Corporate governance of Chinese fund management companies, Doctor of Philosophy (PhD), Economics, Finance and Marketing, RMIT University.


Document type: Thesis
Collection: Theses

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Title Corporate governance of Chinese fund management companies
Author(s) Yu, P
Year 2013
Abstract The growth of the fund management industry is an important part of China’s financial development. The contractual form of fund management companies (FMC) organisation in China presents a multiple governance issues in addition to the conventional agency problems associated with modern corporations. The lack of fund investor’s voice in the governance of FMC, coupled with a regulatory environment with weak enforcement of investor protection, heightens the need for effective FMC governance in protecting the interests of fund investors. Board effectiveness is usually considered in the literature as the central internal governance mechanisms to enhance investor protection. Financial performance is the key interest for fund investors.

Using panel data of 288 firm-year observations covering more than 98% of FMC in China from 2006 to 2010, this study presents the first in-depth systematic investigation on how the quality of corporate governance may matter in determining board effectiveness and financial performance of the contractual form of FMC organizations by investigating evidence from China where institutional and regulatory environment is quite different from those of funds in the U.S. The results of empirical tests in this study suggest that corporate governance quality is important in determining FMC performance.

In examining how key internal governance mechanisms affect FMC board effectiveness and financial performance, we find that FMC with a listed controlling shareholder significantly enhances board effectiveness and improve FMC performance while the presence of foreign ownership in FMC increases FMC fees, it substantially enhances FMC performance. Findings of this study also shows that the concentrated ownership in FMC has no impact on board effectiveness but harms FMC performance.
This study shows that larger board has no effect on board effectiveness but harms FMC performance, affirming the ineffectiveness of board size in China and the higher coordination costs impacting negatively on FMC performance. The proportion of independent directors is found to have no impact on either board effectiveness or FMC performance. With its concentrated ownership among FMC and shortage of qualified independent directors in China, it is unlikely that independent directors plays an effective role in monitoring and control, thus resulting in ineffectual board independence in China’s current circumstance.

While the presence of female senior executives is found to enhance FMC board effectiveness, the impact of female senior executives on FMC performance is not found. Increasing the number of females on board has no impact on board effectiveness but actually damages FMC performance. This study shows the presence of remuneration committee could enhance board effectiveness but has limited power to influence FMC performance. While the presence of remuneration committee can help better align of interests between senior officers in FMC and fund investors, it plays negligible role in retaining Chinese fund managers because of the high turnover rate in Chinese fund managers.

Overall, the thesis provides strong evidence that the governance of FMC is important in enhancing the board effectiveness and the financial performance of funds.
Degree Doctor of Philosophy (PhD)
Institution RMIT University
School, Department or Centre Economics, Finance and Marketing
Keyword(s) Corporate governance
Fund management companies
Board effectiveness
Performance
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Created: Wed, 03 Aug 2016, 14:52:13 EST by Keely Chapman
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