Empirical Study of Dynamic Chinese Corporate Governance Based on Chinese-listed Firms with A Panel VAR Approach

Purpose – In this article, a dynamic model like a VAR is an appropriate choice for estimating the possible interrelationship between ownership structure and firm performance as a dynamic process. Research design, data, and methodology – Data of this work are collected from Chinese stock exchange including 350 Chinese-listed firms during the period of 1999-2012. We hypothesize that this interrelationship dynamically exists between ownership structure and firm performance. To examine the correlation, a panel Vector Auto-regression (PVAR) approach generated by GMM method is utilized to test the possible dynamic relation embedded in corporate governance. Another two dynamic analysis solutions such as orthogonalized impulse-response function and variance decomposition are also used simultaneously. Results – Findings of this study indicate the evidence that dynamically endogenous relationship exists between ownership structure and firm performance. Further, there is a dynamical correlation between investment and performance. Impulse response and variance decomposition illustrate that impact of a shock to variables themselves is the main source for their variability. Conclusions – The conclusion in this study is that there is a bidirectional and inter-temporal effect between proportion of ownership and corporate performance for a long run in accordance with impulse response function. Overall, our results suggest that corporate governance in China is more market oriented.