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The Usefulness of the Supervisory Board Report in China

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  • Jay Dahya

    (Purdue University.)

  • Yusuf Karbhari
  • Jason Zezong Xiao
  • Mei Yang
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    Abstract

    Chinese listed companies adopt a two-tier board structure, a Board of Directors (BoD) and a Supervisory Board. They are also required to provide in their annual reports a supervisory board report (SBR). However, Congquin, a listed company, failed to issue a SBR in its 1998 annual report. This study specifically investigates the usefulness of the SBR by examining the stock market reaction to Congquin's SBR omission. The study also examines the Supervisory Board's reporting process and users' perceived usefulness of the SBR through interviews with directors, supervisory board members and senior executives of 16 listed companies. Discussions were also held with financial analysts, regulatory officials and academics. Our event study suggests that the absence of the SBR in Congquin's 1998 annual report caused a negative market reaction suggesting that investors had considered the SBR and the Supervisory Board important and were discouraged by the problems manifested by the absence of the SBR. Our interviews reveal that the usefulness of the SBR depends on the role that the Supervisory Board plays in corporate governance. If the Supervisory Board is an honoured guest, a friendly advisor, or a censored watchdog, it is unlikely that the SBR will convey much useful information. By contrast, if the Supervisory Board acts as an independent watchdog, then the SBR would be useful. Given the fact that the Supervisory Board in most of the companies that participated in the interviews fell into the first three categories, there remains a strong need to improve the usefulness of the SBR and strengthen the functioning of the Supervisory Board. Copyright 2003 Blackwell Publishing Ltd..

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Corporate Governance.

    Volume (Year): 11 (2003)
    Issue (Month): 4 (October)
    Pages: 308-321

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    Handle: RePEc:bla:corgov:v:11:y:2003:i:4:p:308-321

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    Cited by:
    1. Chen, Gongmeng & Firth, Michael & Gao, Daniel N. & Rui, Oliver M., 2006. "Ownership structure, corporate governance, and fraud: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 12(3), pages 424-448, June.
    2. Victor Chen & Jing Li & Daniel Shapiro, 2011. "Are OECD-prescribed “good corporate governance practices” really good in an emerging economy?," Asia Pacific Journal of Management, Springer, vol. 28(1), pages 115-138, March.
    3. Helen Hu & On Tam & Monica Tan, 2010. "Internal governance mechanisms and firm performance in China," Asia Pacific Journal of Management, Springer, vol. 27(4), pages 727-749, December.
    4. Chunxin Jia & Shujun Ding & Yuanshun Li & Zhenyu Wu, 2009. "Fraud, Enforcement Action, and the Role of Corporate Governance: Evidence from China," Journal of Business Ethics, Springer, vol. 90(4), pages 561-576, December.
    5. Yuan George Shan & Lei Xu, 2012. "Bad debt provisions of financial institutions: Dilemma of China's corporate governance regime," International Journal of Managerial Finance, Emerald Group Publishing, vol. 8(4), pages 344-364.
    6. Yeh, Chien Mu & Taylor, Tracy & Hoye, Russell, 2009. "Board roles in organisations with a dual board system: Empirical evidence from Taiwanese nonprofit sport organisations," Sport Management Review, Elsevier, vol. 12(2), pages 91-100, May.
    7. Shujun Ding & Zhenyu Wu & Yuanshun Li & Chunxin Jia, 2010. "Executive compensation, supervisory board, and China’s governance reform: a legal approach perspective," Review of Quantitative Finance and Accounting, Springer, vol. 35(4), pages 445-471, November.

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