Does regulation matter? Changes in corporate governance in China and its impact on financial market growth: an empirical analysis (1995-2014)

Abstract

Purpose

Over the past two decades, China’s stock market has experienced rapid growth. This period has seen the transplantation of many “OECD principles of corporate governance” into the Chinese corporate regulatory framework. These regulations are dominated by shareholder values. This paper aims to discover whether there is a causal relationship between the changes in China’s corporate governance and financial market growth.

Design/methodology/approach

This paper uses data from 1995-2014 to create a robust corporate index by looking at 52 variables and a financial index out of five financial market parameters. Subsequently, data are subject to a panel regression analysis, with the financial market index as the outcome variable, corporate governance index explanatory variable and a variety of economics, social and technological control variables.

Findings

This paper concludes that changes in corporate regulation have in fact had no statistically significant impact on China’s financial market growth, which must therefore be attributed to other factors.

Originality/value

The study is the first in the context of Chinese corporate governance impact studies to use Bayesian methodology to analyse a panel dataset. It uses OECD principles as the anchor to provide a clear picture of evolution of corporate governance for a 20-year period which is also longer than previous studies.

Citation

Chen, D., Samanta, N. and Hughes, J. (2020), "Does regulation matter? Changes in corporate governance in China and its impact on financial market growth: an empirical analysis (1995-2014)", Corporate Governance, Vol. 19 No. 5, pp. 985-998. https://doi.org/10.1108/CG-07-2018-0256