- See, eg the report at http://blogs.wsj.com/marketbeat/2011/09/29/chinese-stocks-crushed-onreport-of-doj-probe/ (all URLs last accessed on 29 August 2012).
- E Buckberg and M Gulker, “Cross-Border Shareholder Class Actions Before and After Morrison” (NERA Economic Consulting, 2011), figure 1.
- Art 2 of the Special Provisions of the State Council on Issuing and Listing of Shares Abroad by Companies Limited by Shares (Decree No 160 of the State Council of the People's Republic of China, promulgated on 4 August 1994). Full text is available at http://www.csrc.gov.cn/pub/csrc_en/laws/rfdm/AdministrativeLaws/200907/t20090729_119394.htm and at http://www.asianlii.org/cn/legis/cen/laws/spotscctfalaosblsc1081/.
- On this see RH Huang, “The Regulation of Securities Offerings in China: Reconsidering the Merit Review Element in Light of the Global Financial Crisis” (2011) 41(1) Hong Kong Law Journal 261.
- B Xie, WN Davidson and PJ DaDalt, “Earnings Management and Corporate Governance: The Role of the Board and the Audit Committee” (2003) 17 (5) Journal of Corporate Finance 295.
- G Chen, M Firth, D Gao and OM Rui, “Ownership Structure, Corporate Governance, and Fraud: Evidence from China” (2006) 12 (3) Journal of Corporate Finance 424; L Peng and A Röell, “Executive Pay and Shareholder Litigation” (2008) 12 (1) Review of Finance 141; ML Humphery-Jenner, “Internal and External Discipline Following Securities Class Actions” (2012) 21(1) Journal of Financial Intermediation 151.
- Xie et al., supra n 5.
- A Klein, “Audit Committee, Board of Director Characteristics, and Earnings Management” (2002) 33(3) Journal of Accounting and Economics 375.
- F Allen, J Qian and M Qian, “Law, Finance, and Economic Growth in China” (2005) 77 (1) Journal of Financial Economics 57.
- GM Chen, M Firth and OM Rui, “Have China's enterprise Reforms Led to Improved Efficiency and Profitability?” (2006) 7(1) Emerging Markets Review 82.
- ML Humphery-Jenner, “Securities Fraud Compensation: A Legislative Scheme Drawing on China, the US and the UK” (2011) 38(2) Legal Issues of Economic Integration 143; G Chen, M Firth and DN Gao, “Is China's Securities Regulatory Agency a Toothless Tiger? Evidence from Enforcement Actions” (2005) 24 (6) Journal of Accounting and Public Policy 451.
- See also Art 132 of the Companies Law of the People's Republic of China 2005. Full text available at http://www.csrc.gov.cn/pub/csrc_en/laws/rfdm/statelaws/200904/t20090428_102712.htm.
- See Decree No 160, supra n 3.
- See, eg L Bebchuk, A Cohen and A Ferrell, “What Matters in Corporate Governance?” (2009) 22(2) Review of Financial Studies 783; P Gompers, J Ishii and A Metrick, “Corporate Governance and Equity Prices” (2003) 118(1) Quarterly Journal of Economics 107; RW Masulis, C Wang and F Xie, “Corporate Governance and Acquirer Returns” (2007) 62(4) Journal of Finance 1851; RW Masulis, C Wang and F Xie, “Agency Problems at Dual-Class Companies” (2009) 64(4) Journal of Finance 1697.
- I acknowledge that performance of Chinese companies might merely reflect self-selection into listing overseas. However, I mitigate this problem by comparing Chinese companies to other non-US companies that list in the US (and thus might have the same self-selection issue). Further, this self-selection issue is arguably less severe for Chinese companies because weaker Chinese companies might also want to list in the US to gain access to capital. This means that both strong and weak Chinese companies might want to issue shares abroad.
- See Art 2 of Decree No 160, supra n 3.
- The SEC states this on their website. See http://www.sec.gov/answers/listing.htm.
- See http://usequities.nyx.com/regulation/listed-companies-compliance/listings-standards.
- NYSE Listed Company Manual, s 103.00.
- Ibid, s 103.01.
- The discussion here presents a slightly abridged version of the NYSE listing standards. A full discussion is available at http://usequities.nyx.com/regulation/listed-companies-compliance/listings-standards/non-us.
- Ibid.
- For a full description of the listing standards see NASDAQ, Listing Standards & Fees (NASDAQ, 2010). The document is available at https://listingcenter.nasdaqomx.com/assets/initialguide.pdf.
- For an evaluation of the relative strength of different exchange rules see D Cumming, S Johan and D Li, “Exchange Trading Rules and Stock Market Liquidity” (2011) 99(3) Journal of Financial Economics 651.
- For a summary of the rules see NASDAQ, Regulatory Requirements (NASDAQ, 2010), 1–4. The summary is available at http://www.nasdaq.com/about/RegRequirements.pdf. The exemption for foreign companies is in Equity Rule 5615(c).
- NYSE Listed Company Manual, Rule 303A.00.
- Ibid, Rule 303A.11.
- This compliance requirement is in Ibid, Rule 303A.06.
- The full text of SOX is available at http://www.sec.gov/about/laws/soa2002.pdf.
- SOX applies to “issuers” of securities as defined in s 2 of the Act, which incorporates s 3 of the Securities Exchange Act of 1934, which defines an issuer as “any person who issues or proposes to issue any security”.
- See, eg IX Zhang, “Economic Consequences of the Sarbanes-Oxley Act of 2002” (2007) 44(1–2) Journal of Accounting and Economics 74; E Engel, RM Hayes and X Wang, “The Sarbanes—Oxley Act and Firms' Going-Private Decisions” (2007) 44 (1–2) Journal of Accounting and Economics 116.
- Q Yu, B Du and Q Sun, “Earnings Management at Rights Issues Thresholds—Evidence from China” (2006) 30(12) Journal of Banking and Finance 3453.
- JL Kao, D Wu and Z Yang, “Regulations, Earnings Management, and Post-IPO Performance: The Chinese Evidence” (2009) 33(1) Journal of Banking and Finance 63.
- C Doidge, GA Karolyi and RM Stulz, “Why Do Foreign Firms Leave US Equity Markets?” (2010) 65(4) Journal of Finance 1507.
- JM Karpoff, DS Lee and GS Martin, “The Consequences to Managers for Financial Misrepresentation” (2008) 88 Journal of Financial Economics 193.
- J Karpoff and J Lott, “The Reputational Penalty Firms Bear from Committing Criminal Fraud” (1993) 36 Journal of Law and Economics 757; S Chava, K Huang and SA Johnson, “Why Won't You Forgive Me? The Dynamics of Borrower Reputation Following Financial Misreporting”, working paper (2012), available at http://dx.doi.org/10.2139/ssrn.2012691.
- SH Goo and FX Hong, “The Curious Model of Internal Monitoring Mechanisms of Listed Corporations in China: The Sinonisation Process” (2011) 12(3) European Business Organization Law Review 469.
- CEIBS, “Towards Mature Corporate Governance Standards in China”, Forbes India, 2 December 2011, available at http://forbesindia.com/article/ceibs/towards-mature-corpo-rate-governancestandards-in-china/30552/1.
- For a summary of these reforms see CFA Institute, “China Corporate Governance Survey” (2007); DC Clarke, “The Independent Director in Chinese Corporate Governance” (2006) 31(1) Delaware Journal of Corporate Law 125.
- CFA Institute, Ibid; CEIBS, supra n 38; Q Liu, “Corporate Governance in China: Current Practices, Economic Effects and Institutional Determinants” (2006) 52(2) CESifo Economic Studies 415.
- Q Liu and Z Lu, “Corporate Governance and Earnings Management in the Chinese Listed Companies: A Tunneling Perspective” (2007) 13(5) Journal of Corporate Finance 881; AWY Lo, RMK Wong and M Firth, “Can Corporate Governance Deter Management from Manipulating Earnings? Evidence from Related-Party Sales Transactions in China” (2010) 16(2) Journal of Corporate Finance 225; MJ Conyon and L He, “Executive Compensation and Corporate Governance in China” (2011) 17(4) Journal of Corporate Finance 1158; M Firth, PMY Fung and OM Rui, “Corporate perforMance and CEO Compensation in China” (2006) 12(4) Journal of Corporate Finance 693.
- DM Anderson, “Taking Stock in China: Company Disclosure and Information in China's Stock Markets” (2000) 88 Georgetown Law Journal 1919.
- X Huang, “In Defence of China's Public Enforcement in Equity Market” (2010) 21(10) International Company and Commercial Law Review 327.
- Chen et al., supra n 11.
- BL Liebman and CJ Milhaupt, “Reputational Sanctions in China's Securities Market” (2008) 108 Columbia Law Review 928.
- C Jia, S Ding, Y Li and Z Wu, “Fraud, Enforcement Action, and the Role of Corporate Governance: Evidence from China” (2009) 90(4) Journal of Business Ethics 561.
- MA Layton, “Is Private Securities Litigation Essential for the Development of China's Stock Markets?” (2008) 83 New York University Law Review 1948 at 1978.
- M Firth, PLL Mo and RMK Wong, “Financial Statement Frauds and Auditor Sanctions: An Analysis of Enforcement Actions in China” (2005) 62(4) Journal of Business Ethics 367.
- See Some Provisions of the Supreme People's Court on Trying Cases of Civil Compensation Arising from False Statement in Securities Market (adopted at the 1261st meeting of the Judicial Committee of the Supreme People's Court on 26 December 2002; Interpretation No 2 [2003] of the Supreme People's Court).
- Humphery-Jenner, supra n 11; H Huang, “The Statutory Derivative Action in China: Critical Analysis and Recommendations for Reform” (2007) 42(1) Berkeley Business Law Journal 227.
- Karpoff and Lott, supra n 36.
- Karpoff et al., supra n 35; Karpoff and Lott, Ibid; Humphery-Jenner, supra n 6; L Bai, JD Cox and RS Thomas, “Lying and Getting Caught: An Empirical Study of the Effect of Securities Class Action Settlements on Targeted Firms” (2011) 158(7) University of Pennsylvania Law Review 1877; A Gande and CM Lewis, “Shareholder-Initiated Class Action Lawsuits: Shareholder Wealth Effects and Industry Spillovers” (2009) 44 Journal of Financial and Quantitative Analysis 823.
- Buckberg and Gulker, supra n 2.
- Note that all of these 27 class actions were against companies which had listed via reverse merger, thereby avoiding the relevant merits review processes. Before 2010, relatively few class actions had been filed against Chinese companies.
- Morrison v National Australia Bank Ltd, 130 S Ct 2869, 2884 (2010).
- For a full analysis of the economic consequences of Morrison v National Australia Bank Ltd see L Gagnon and GA Karolyi, “The Economic Consequences of the U.S. Supreme Court's Morrison v National Australia Bank Decision for Foreign Stocks Cross-Listed in US Markets”, Johnson School Research Paper No 50–2011 (2011).
- RW Masulis and S Mobbs, “Are All Inside Directors the Same? Evidence from the External Directorship Market” (2011) 66(3) Journal of Finance 823; Humphery-Jenner, supra n 6; BD Nguyen and KM Nielsen, “The Value of Independent Directors: Evidence from Sudden Deaths” (2010) 98(3) Journal of Fiancial Economics 550; JF Cotter, A Shivdasani and M Zenner, “Do Independent Directors Enhance Target Shareholder Wealth during Tender Offers?” (1997) 43(2) Journal of Financial Economics 195. But see SP Ferris and X Yan, “Do Independent Directors and Chairmen Matter? The Role of Boards of Directors in Mutual Fund Governance” (2007) 13 (2–3) Journal of Corporate Finance 392.
- This supposition underlies the adoption of a corporate governance policy at Time Warner; see Time Warner Inc, “Corporate Governance Policy” (Time Warner Inc, 2012).
- CC Verschoor, “A Study of the Link between a Corporation's Financial Performance and its Commitment to Ethics” (1998) 17(3) Journal of Business Ethics 1509; JS Adams, A Tashchian and TH Shore, “Codes of Ethics as Signals for Ethical Behavior” (2001) 29(3) Journal of Business Ethics 199.
- KJ Rediker and A Seth, “Boards of Directors and Substitution Effects of Alternative Governance Mechanisms” (1995) 16(2) Strategic Management Journal 85.
- YV Hochberg, “Venture Capital and Corporate Governance in the Newly Public Firm” (2012) 16(2) Review of Finance 429; P Hribar and DW Collins, “Errors in Estimating Accruals: Implications for Empirical Research” (2002) 40(1) Journal of Accounting Research 105.
- RG Powell and AW Stark, “Does Operating Performance Increase Post-takeover for UK Takeovers? A Comparison of Performance Measures and Benchmarks” (2005) 11 Journal of Corporate Finance 293.
- Buckberg and Gulker, supra n 2, figure 2.
- Karpoff and Lott, supra n 36; Chava et al., supra n 36.
- M Firth, OM Rui and W Wu, “Cooking the Books: Recipes and Costs of Falsified Financial Statements in China” (2011) 17(2) Journal of corporate Finance 371.
- Rediker and Seth, supra n 60.
- T Eisenberg, S Sundgren and MT Wells, “Larger Board Size and Decreasing Firm Value in Small Firms” (1998) 48(1) Journal of Financial Economics 35. For the argument that there is an optimal board size see S Beiner et al., “Is Board Size an Independent Corporate Governance Mechanism?” (2004) 57(3) Kyklos 327.
- RS Chaganti, V Mahajan and S Sharma, “Corporate Board Size, Composition and Corporate Failures in Retailing Industry” (1985) 22(4) Journal of Management Studies 400.
- Masulis and Mobbs, supra n 57.
- Ibid.
- Hochberg, supra n 61; Xie et al., supra n 5; Liu and Lu, supra n 41.
- See eg Hochberg, supra n 61; Liu and Lu, Ibid; Klein, supra n 8; MM Cornett, JJ McNutt and H Tehranian, “Corporate Governance and Earnings Management at Large US Bank Holding Companies” (2009) 15(4) Journal of Corporate Finance 412.
- Hribar and Collins, supra n 61.
- Ibid.
- J Macey, M O'Hara and D Pompilio, “Down and Out in the Stock Market: The Law and Economics of the Delisting Process” (2008) 51(4) Journal of Law and Economics 683 at 683–84.
- A Marosi and N Massoud, “You Can Enter but You Cannot Leave…': US Securities Markets and Foreign Firms” (2008) 63(5) Journal of Finance 2477.
- But note the criticism of some governance rules in R Adams, “Governance and the Financial Crisis” (2012) 12(1) International Review of Finance 7.
- See, eg E Demers and P Joos, “IPO Failure Risk” (2007) 45(2) Journal of Accounting Research 333.
- MA Petersen, “Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches” (2009) 22(1) Review of Financial Studies 435; SA Johnson, TC Moorman and S Sorescu, “A Reexamination of Corporate Governance and Equity Prices” (2009) 22(11) Review of Financial Studies 4753.
- This is important because the financial crisis of 2008–09 impacted China less than it impacted the rest of the world; and thus, Chinese companies would naturally perform better in 2008–2009 than would other companies.
Journal of Corporate Law Studies
Volume 12, 2012 - Issue 2