Corporate governance affects the behavior of a company and also its operant condition plus its stock market performance. Chinese firms are not performing well due to the corporate governance practices inChina(Xu & Wang; 1999). Better corporate governace helps a company perform better (Sun & Tong; 2003). Most companies in China have a parent company which has given rise to the control of major shareholders. Yet a research shows that the greater the government ownership of a company in China the better its stock performance (Tian, 2001). This shows that the regular companies might not perform that well in the stock exchange.
The corporate governance practices of China give controlling power to few major shareholders due to which such companies assume the power of camouflaging the actual performance of their company. These companies can also falsify their financial reports and this has proved that Chinese firms have a better potential of making higher Returns on Equity. Chinese firms are making above 10% or minimum 6% ROE. Such benefits are not present for companies expanding intoChinaand such practices hinder the growth of new companies (Liu & Lu, 2004). Hence group controlled companies are in a better position comparatively. This limits the scope of an automotive retailer to expand into China.
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