Corporate governance covers the method of reporting profit by a firm as well because if the large shareholders or management of the company want to hush away minority shareholders or direct the company’s resources in a particular direction then there is a chance that they may provide wrong figures of profits to lure the unwanted entities away from the company.
Previously, it was common practice in China to camoflague profits since the CSRC relies on the accounting records to regulate companies. The firms had learnt to manage their Return on Equity (ROE) in a way that benefits the interests of the company. Research shows that mostly companies inChinahad shown a low ROE which was a false figure but to protect interests. Figure 2 (See Appendix) shows the ROE figures of major listed companies inChinabetween 1999-2001.
The greater the amount of policies to regulate the reporting of profits by firms affects the earnings of the companies and its major shareholders since transparency of operations takes the front seat in the process (Liu & Lu, 2004). Ownership is significant in matters like incentives through profit reporting and a research that included six types of ownerships inChinathat include private companies, collective companies, SOE’s, foreign invested companies, Asian invested companies and joint stock corporations. The research showed that the stronger a company the greater the benefits of profit reporting (Liu & Xiao, 2004). The government ofChinahas been involved in profit reporting in order to regulate and control profit reporting of firms and ensure that the companies abide by the regulations set by the Central Government (Chen, Lee & Li, 2003).
These are excerpts of essays please place order for custom essay paper, term papers, research papers, thesis, dissertation, book reports and case studies.