The role of financial institutions in the corporate governance of listed Chinese companies

This paper explores the role of Chinese financial institutions in corporate governance of listed companies through interviews with both senior managers of financial institutions and directors of listed companies. Our results show that while most securities companies are passive investors, a good proportion of the active mutual funds help their portfolio companies prepare financial forecasts, standardise their operations, raise external funds and strengthen their company image in the capital markets. This limited role can be attributed to a number of factors specific to the Chinese context including highly concentrated state ownership, an immature regulatory environment, inadequate transparency and disclosure of financial information, and weak corporate governance within financial institutions themselves. It could also be affected by several other factors that are considered to cause institutional passivity in developed countries such as conflict of interest, monitoring costs, and lack of expertise