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Book Title: Economic Analysis of Law in China
Editor(s): Eger, Thomas; Faure, Michael; Naigen, Zhang
Publisher: Edward Elgar Publishing
ISBN (hard cover): 9781847200365
Section: Chapter 8
Section Title: Monitoring Problems versus Fiduciary Duties in Chinese Stock Companies: An Economic and Comparative Analysis on Corporate Governance
Author(s): Jiang, Qing-Yun
Number of pages: 22
Extract:
8. Monitoring problems versus
fiduciary duties in Chinese stock
companies: an economic and
comparative analysis on corporate
governance
Qing-Yun Jiang1
1. INTRODUCTION
Corporate governance plays a very important role in a nation's economy
with respect to product development, marketing and finance. Excessive
managerial discretion could cause many problems, such as high monitor-
ing costs (agency costs) and breach of fiduciary duties (fraud, cheating
investors) and therefore it is inefficient and harmful to the economy. The
debate on corporate reform in China in recent years has focused on how to
solve the problem of business structure and reduce excessive discretion by
the board in state-owned companies. The newly effective Chinese
Corporate Law has stressed the importance of fiduciary duties in the man-
agement and protection of small shareholders through the introduction of
many Western practices, such as `piercing the corporate veil', accumulative
voting and derivative lawsuits.2
As is well known, most Chinese stock companies have been transformed
from large state-owned firms. In these corporations, the State has dominant
control, with more than 51 per cent or even up to 80 per cent of the shares.
Under such a structure the directors and officers are nominated by the State
as the largest shareholder, and they represent the interests of the State. This
kind of dominant control is often referred to as `insider control' in the lit-
erature and is thought to be the reason behind the dysfunction of the board
and self-dealing between the corporation and ...
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URL: http://www.austlii.edu.au/au/journals/ELECD/2007/243.html