Abstract
In this article, we examine the evolution of corporate governance reforms in the emerging economies of China and India. We first describe the two major driving forces behind governance reforms in these countries: privatization and globalization. After summarizing the evolution of governance reforms in each context, we identify four major obstacles that impede their implementation in both countries, namely: (1) lack of incentives, (2) power of the dominant shareholder, (3) underdeveloped external monitoring systems, and (4) shortage of qualified independent directors. Next, we highlight practical implications of these governance challenges for foreign firms contemplating, or already involved in,major investments in these emerging economies. We emphasize that foreign firms that are sensitive to context-specific challenges are more likely to put in place appropriate contractual or other safeguards, as well as identify more practical andmeaningful forms of participation in the governance of their ventures. Finally, we conclude with some implications for future research.
1. Corporate governance in China and
India: Crucial and timely?
Corporate governance describes the structure of rights and responsibilities among the parties that have a stake in a firm (Aguilera & Jackson, 2003). Research to date on corporate governance has mainly dealt with the efficacy of various mechanisms that can protect shareholders from self-interested executives, and the focus has generally been on (Western) developed economies (Daily, Dalton, & Cannella, 2003). Thus, relatively little research effort has been devoted to corporate governance issues in emerging economies such as China and India. These economies, however, provide unique opportunities and challenges for governance practices and research (Davis, 2005).
Well-functioning corporate governance mechanisms in emerging economies are of crucial importance for both local firms and foreign investors that are interested in pursuing the tremendous opportunities for investment and growth that emerging economies provide. From the perspective of local firms, there is evidence that firms in emerging economies (compared with their counterparts in developed countries) are discounted in financial markets because of their weak governance (LaPorta, Lopez-de-Silanes, Shleifer, & Vishny, 2000). As such, improvements in corporate governance can enhance investor confidence in firms in emerging economies and increase these firms' access to capital. According to a 2002 McKinsey investor opinion survey, investors who were open to paying premiums were, on average, willing to pay a 25% premium for well-governed Chinese firms and a 23% premium for well-governed Indian firms (Barton, Coombes, & Wong, 2004). From the perspective of foreign investors, emerging economies such as China and India have become increasingly important sources of growth and investment opportunities. For example, foreign investors are now allowed—for the first time since China started permitting foreign direct investment (FDI) in the late 1970s—to acquire a significant shareholding in state-owned enterprises on China's renminbi-dominated, A-share exchanges in Shanghai and Shenzhen. The changing of rules for the types and extent of direct investment in both China and India increases opportunity for economic gains, but it also increases exposure to risks and problems posed by under-developed and lax governance. The governance rules in these countries are both opaque and evolving, and foreign investors need to appreciate the domestic sensitivities and complexities stemming from countryspecific political and institutional landscapes so that appropriate types and levels of involvement can be designed to protect their short-term and long-term interests.留学生论文代写网代写留学生论文,英国硕士论文,澳洲论文,
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