Foreign investment into the shares of companies listed in mainland China
With Sam Beatson (University of Nottingham Research Centre for Finance and Banking, School of Contemporary Chinese Studies), accompanied by Dr Jian Chen (PhD in Finance from KCL – Associate Professor in Finance – School of Contemporary Chinese Studies, Nottingham).
Room S-1.04, Strand Building, Strand Campus, King's College London
4-6pm, Wednesday 11 February 2015
The Chinese have been gradually, and recently, more readily opening the Chinese capital account and in particular, allowing foreign investment into the shares of companies listed in mainland China. Foreign investors’ relative experience can add ‘funds, dynamism, expertise and global networks’ to Chinese capital markets (Green, 2003: 199). Foreign investors have been expected to compliment corporate governance (CG) as advocates of CG mechanisms and thence, improve company performance (Gillan & Starks, 2003; Tan, 2009). The topic is important, yet the matter of the impacts (and determinants) of foreign investment in the Chinese domestically listed firms has remained understudied.
To investigate whether foreign investment augments existing corporate governance mechanisms, this research has used a panel of around thirty thousand firm-quarter observations, unlike prior cross sectional studies which use only annual data or a short time series. Foreign investors were teased out of shareholding configurations and disaggregated for what appears to be the first time. Since firms that attract some foreign investors ought to be those who have better performance compared with other companies, empirically, these firms could have better accounting profits and better stock market performance. A fixed effects methodology is resorted to in order to mitigate the issue of unobserved heterogeneity and partially offset this issue of reverse causality. More robustly, a 2-stage least squares approach was taken to further deal with the issue of a potential endogeneity in the model.
The results suggest that the presence of a QFII in the top shareholders of these companies is associated with their better performance, using a book (ROA) and market performance (Tobin’s Q), and there could be a causal element in this, similarly for the case of sino-foreign mutual fund joint ventures, but coefficients from the models were either negative or insignificant in respect of foreign legal persons and ultimate foreign ownership. This study conditions for existing corporate governance mechanisms in a number of ways. The findings suggest that higher amounts of foreign ownership could be augmenting corporate governance mechanisms either acting indirectly, as a signal to the market, or directly, though through a leverage effect of foreign ownership as an agency monitoring device, by which foreign investors’ influence outweighs their ownership proportion. Insight into the findings were gained from 25 interviews with practitioners in the Greater China region.
About the Speakers
Sam Beatson is a final stage PhD candidate from the Research Centre for Finance and Banking in the School of Contemporary Chinese Studies at the University of Nottingham and is currently a Teaching Fellow in Chinese business and Corporate Governance at the Lau Institute of King’s College London. He has twice been a scholar to the University of Hong Kong (HKU) School of Business (Faculty of Business and Economics) in 2011 and 2013 and achieved a full scholarship to the University of Torino annual ToChina Chinese Political Economy intensive training in 2011. He received his MSc in Chinese business and international relations with Chinese language from the University of Sheffield in 2007. Sam has a background of having owned and run his own businesses and has previously incorporated two limited companies in the UK. He has consulted for portfolio investment advisory company ISACo Ltd (Manchester) and to his own clients in the US, Australia, Singapore, the UK and China. During 2013, he interviewed hedge fund managers. investment fund managers, senior auditors, corporate forensics consultants, supply chain managers and academics in the Greater China region in the collection of qualitative data for his PhD. This has complimented the quantitative approaches he has employed in his research - applying econometric models to understanding the modes, roles and preferences of foreign investors in listed company share ownership within Chinese financial markets. He aims to present the papers emerging from his PhD research at a number of institutions in the Greater China region over the coming 12 months. Sam is published in the Journal of Chinese Economic and Business Studies along with co-authors Dylan Sutherland (Durham) and Lutao Ning (Cambridge) in addition to having had several opinion/insight articles accepted for publication on the China Policy Institute (CPI) Blog (Nottingham). Sam’s most recent paper has been reviewed and accepted as a working paper for future publication through the CPI and is entitled ‘Foreign Investment, Corporate Governance and Performance in the Chinese Listed ‘A’ Share Companies’.
Dr Jian Chen's research covers corporate finance, including capital structure, political economy of corporate finance; corporate governance, including ownership structure issues and its relation to corporate performance; financial markets. He is a prominent leader in programme development and curriculum design having created 11 modules and 3 new Master’s courses at the University of Nottingham during 2010-2014. He has published extensively on corporate finance and corporate governance in China, including four books, a special issue of a well-regarded academic journal and many journal articles, which are all well cited in the literature. He has been an executive board member for the Chinese Economic Association in UK/the EU since 1997 and was President of the association in 2002 – 2003, being newly re-elected as the 26th Annual Conference organiser for 2015. Recently, Dr Chen has instigated leadership initiatives as volunteer Executive Director of the Nottingham Confucius Institute during which time he has expanded this strategic part of the university from its original language and cultural exchange objectives to expanding the scope for international collaboration and exchange through the Fudan-Nottingham Centre for Chinese Studies, a joint research centre. He has been the senior supervisor of Mr Beatson’s research since the outset in 2010.
Image: Shanghai Stock Exchange, Author Aaron Goodman, License Creative Commons, Attribution-NoDerivs 2.0 Generic