Chunxin Jia

A separate monitoring organ and disclosure of firm-specific information

As the economy is recovering from the recent financial crisis, we explore the appropriateness of a corporate monitoring organ, which is a component separate from the board of directors, to enhance firm-specific information disclosure. Findings of this study, rooted in the evidence from Chinas stock markets, confirm that having a separate and effective monitoring organ results in a higher level of idiosyncratic risk, as long as the legal environment is sufficiently strong and the functionality of this separate monitoring organ is clearly defined. Effects of regulatory changes and ownership characteristics are addressed to help better understand the corporate governance–idiosyncratic risk relationship. Moreover, this study sheds light on timely global issues about information transparency and supervision, the lack of which becomes one of the major causes of the ongoing financial crisis, and presents an important challenge before corporate governance.

Institutional Shareholders and Executive Compensation: An Ethical View

While institutional shareholders are shown to be effective monitors in curbing executive compensation in mature capital markets, this study presents findings from Chinese stock markets, and indicates the possible collusion between institutional shareholders (e.g. mutual funds) and executives in publicly listed companies. Mutual funds in China fail to serve as an effective monitor of executive compensation, suggesting that ethics seems to play no part when mutual funds and the management of listed companies extract their self-interests. Further analysis also demonstrates that, while bank-affiliated mutual funds are not better monitors than non-bank-affiliated ones, joint-equity-bank-affiliated ones are more effective monitors than state-owned-bank-affiliated ones.