The effects of the corporate governance on the economy ofChinacan be analysed on the firm level, returns from the stocks and reporting of profits by firms.
2.5.1 Effect of corporate governance on firm level
The corporate governance under which a firm operates affects its overall performance in terms of stocks and financial performance. Privitization affects the performance of a corporate in a positive way (Sun & Tong, 2003). Literature on the economic effects of the corporate governance inChinais immense and a lot of researchers claim that government ownership enhances the stock market performance of a company (Tian, 2001). Usually in companies employee stock ownership has motivated employees and led to the growth of the company but the situation inChinais different due to which stock ownership of employees does not contrtibute to the growth of a corporation inChina(Ning & Zhou, 2005). The dependency of private companies on the turnover generated by the CEO leads to inefficiencies and instead state owned enterprises have a different system which leads to growth (Kato & Long, 2005). Confirming Tian’s claim another research that included eight companies from differentindustries, studied the affect of being state owned on the valuation of the company’s stock in the market. The research proved that shares as held by the large shareholders and being state owned affects the valuation of the stock of a company in a positive manner (Bai, Liu, Lu, Song & Zhang, 2004). The reason for the finding being that the largest shareholder is easier to monitor in order to prevent channelisation of company stocks or resources in a single direction (Bai, Liu & Song, 2004). Issuing shares ti investors from foreign counterparts also improves the valuation of a company’s market performance since in order to issue such shares transparency plays a vital role, hence, market valuation improves (Bai, Liu, Lu, Song & Zhang, 2004).
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