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The corporate literature has examined what factors affect corporate governance regimes and the effect of the choice of such regimes in the U.S. and other developed economies. Very few empirical works have been done to test whether publicly listed companies in China, the fast rising economy, behave as the corporate law and economics theories predict. In this article, using a unique, hand-coded data set on corporate charter provisions in randomly sampled 297 public Chinese firms, we develop an additive index that demonstrates whether they are more pro-controllers or pro-minority shareholders as compared to Delaware law and NYSE listing rules. We find that public Chinese firms were also disciplined by the market. Firms that depend on external finance more tend to have more pro-minority governance regimes. Like American firms, Chinese firms do not appear to use pro-controller measures to eliminate the rational myopia of managers, as firms that have high R&D expenses or capital expenditure as compared to their assets do not adopt more anti-takeover measures. Finally, state-own enterprises, as compared to firms that the state has less than 50% of the shares, tend to be more pro-minority shareholders.

Yun-Chien Chang, Professor of Law, Academia Sinica, Taiwan