Corporate%20Governance%20in%20Hong%20Kong

1
Corporate Governance in Hong Kong

• Stephen Y. L. Cheung
• Professor (Chair) of Finance
• Department of Economics and Finance
• City University of Hong Kong
• January 2003

2
Characteristics of Asian Equity Markets

• Single majority shareholder
• Family control
• Lack of institutional investors
• CEO and chairman are not separated
• Underdeveloped corporate control market

3
A Successful Market Depends On

• Good Regulatory Framework
• Quality Listed Companies
• Quality Intermediaries

4
Good Regulatory Framework

• Small Shareholders
• Look for short-term capital gain
• Ignore issues of corporate governance
• Do not pay attention to shareholders right
• Inadequate shareholder protection

5
Good Regulatory Framework

• Suggestions
• Derivative action
• Fund for legal action

6
Good Regulatory Framework

• Example
• Hong Kong listed companies
• 75 registered overseas
• Different requirements
• Class Action
• Contingency Fee

7
Quality Listed Companies

• A successful market does not depend on
• Number of listed companies
• Market capitalization
• Depends on
• Number of good listed companies
• Liquidity
• Ability to attract funds

8
Quality Listed Companies

• Relation between directors pay and companys
  performance
• Sample period 1991-1995
• 10 directors pay gt companys earnings
• No relation

9
Quality Listed Companies

• Corporate governance
• Independence of the Board
• Problem
• Connected parties transactions
• Information disclosure

10
Quality Listed Companies

• Enhance independence of the Board
• Recruitment details of independent non-executive
  directors
• Greater transparency
• Financial
• Non-Financial
• Performance evaluation

11
Quality Listed Companies

• Suggestions
• Licensing for directors
• Directors education
• Scorecard for corporate governance
• Investors
• Pressure

12
Quality Intermediaries

• Intermediaries
• Accountants
• Auditors
• Lawyers
• Financial Analysts

13
Quality Intermediaries

• Example
• A News on 23 December 2002
• 3 listed companies were involved over a suspected
  scam of making bogus business transactions and
  inflated revenue
• Arrested by the ICAC
• Including accountants and financial consultants
• Inflated turnover

14
Quality Intermediaries
15
Quality Intermediaries
16
Quality Intermediaries
17
Quality Intermediaries

• Self-Regulation
• Effectiveness?
• Independent Investigation Committee

18
Conclusion

• Market creditability
• Investor confidence
• Ability for further funding
• Ability to attract quality companies

19
The End

• Thank you